The majority of Americans are not financially prepared to pay for their college tuition out of pocket, not to mention all the other fees that come along with studying at a state or private university. Given how expensive it is to attend college, it’s not uncommon for students to take out multiple federal or private loans to finance their education.
In 2019 the interest rate is 4.53% for undergrad and 6.08% for grad school. The maximum amount you can borrow per year of undergrad is between 3,500$ to 5,500$. The loan fee is 1.062% until October and then 1.059% until October 2020.
For students making payments to multiple lenders, paying off student loan debt can become a hassle. Keeping track of when payments are due, and not being able to afford those payments on a monthly basis, can quickly put students in a financial bind. To remedy this problem, many students turn to consolidating their loans to simplify the payment process.
Student loan consolidation is the action of combining several student loans into a bigger loan under one lender. By consolidating your loan, you reduce your payments to a single monthly payment. Loan consolidation is ideal if you can’t afford your monthly payments, would like a fixed interest rate over the duration of the loan, or if you don’t qualify for income-driven repayment (IDR) plans or Public Service Loan Forgiveness (PSLF).
If you consolidate your student loans, you may lower your monthly payment and interest rate, which will extend the payment period. Although this means it will take you longer to pay back your loan in full, it will put less strain on your budget in the early stages of your career.
Federal student loan consolidation offers and allows you only to consolidate student loans that are federally guaranteed. Private student loans, or loans borrowed from a private lender such as a bank, cannot be consolidated with your federal loans.
When taking out a federal student loan, there are generally two types to choose from: Stafford loans and Parent PLUS loans.
Stafford loans are financed by the United States Department of Education, and are the most common type of federal student loan. There are two types of Stafford loans available: subsidized and unsubsidized.
Subsidized Stafford loans are available to students of families facing financial difficulties. Repayment doesn’t start until after graduation, and the federal government covers the interest while the student is in school. Unsubsidized Stafford loans defer payments until after graduation, but the student (or parent) must make monthly payments to cover interest.
PLUS loans, or Parent loans, are available to parents of dependent students. These types of student loans have no maximum loan amount and are intended to cover fees like room and board that aren’t included in a standard financial aid package.
Because parents and students will likely take out several loans issued by various lenders in the course of the student’s college career, it’s common to have anywhere from eight to 10 different loan payments a month upon graduation. To streamline the repayment process, many students apply for a Direct Consolidation Loan.
In addition to simplifying repayment, a Direct Consolidation Loan comes with a fixed interest rate and level payments throughout the life of the loan.
If you want to federally consolidate your loans, then you can take care of it in four simple steps:
If you’re struggling to meet your student loan payments, then accessing the student loan consolidation offers, be it federally or through a private lender, is worth looking into. Both options can help you find a payment plan that’s more agreeable to your budget so you’re financially equipped for the future.