As many of us know, a college diploma can come with a lot of student loan debt. And for most Federal student loans, that debt becomes reality six months after graduation, when your first student loan payment is due!
Should you find yourself in a tight financial spot, there are a few solutions to consider. For example, is it better to keep making payments on your current education loans or should you consolidate them into a lower, monthly payment? Before you jump into any one solution, ask yourself the following:
Do my loans have a fixed or variable interest rate?
If your Federal education loans were disbursed before July 1, 2006, then chances are they have a variable rate. Any Federal loans disbursed on or after July 1, 2006 should have a fixed interest rate.
Every year during the month of July, the Federal Government will announce if those variable-rate Federal student loans will increase or decrease [in interest]. Over the past few years, there has been a gradual increase in variable loan interest rates. So if you have more variable rate loans than fixed-rate student loans, then you may want to consider consolidating your education loans to lock in a lower, fixed interest rate.
Do I qualify for extended repayment?
Anyone that has Federal education loans (excludes any private loans) that total $30,000 qualifies for the Extended Repayment Plan. This plan allows an education loan borrower to extend their repayment term from 10 years to 25 years of repayment if they have eligible Federal education loans that were borrowed on or after October 7, 1998. This would be a great way to keep your lower, fixed interest rates while stretching the payments over an extended period (if you need the extra cash flow). And when compared to loan consolidation, the Extended Repayment Plan doesn’t require an application or a new interest rate.
Are lenders offering enough discounts to make my loans consolidation-worthy?
Congress recently passed the College Cost Reduction Act in an effort to increase funding for lower to middle income students and their families. In order to fund the Act, many FFELP student loan lender subsidies were cut. As a result of those cuts, the FFELP lenders had to minimize, or in some cases, discontinue their Federal education loan discounts.
Because many lenders have had to make those cuts in order to continue their services, borrowers need to be more aware of the new loan discounts being offered. So if you have an old lender postcard, or spoke to a lender about their loan discounts at least before Oct. 1, 2007, chances are that that lender may offer different loan discounts now. Be sure to compare different lender discounts before signing your name on any dotted line.
Need Help Figuring It All Out?
Part of our nonprofit mission is to help college students and their families make sound decisions on their college financing. If you like, we have the tools to help you figure out which of the above options is best for you. Feel free to call us at 1-877-256-0066 or contact us electronically.