Student Debt Consolidation Loans: Lightening Borrowers’ Burdens

When the pomp and circumstance dies down and is eclipsed by the financial reality of student loan repayment, the average college graduate feels overwhelmed by his or her debt typically ranging from $10,000 to over $100,000.  With unpredictable cash flow due to the uncertainty of immediate employment and the specter of an entry-level position that pays peanuts, educational loan borrowers wonder where to turn for a little relief.  The statistics are a testament to the uphill battle facing today’s college students:

• Undergraduates shoulder a student loan debt that is 108% higher than that borne by their predecessors 10 years ago.
• Two-thirds of students attending a 4-year college or university graduate with student loan debt.
• The average undergraduate leaves college with approximately $21,000 in debt.
• The average graduate student attending a private, 4-college College or University owes $29,000.
• The average graduate student attending a public, 4-year University completes his or her degree with more than $26,000 in debt.
• Medical and law graduates finance their education with a staggering $100,000 + in student loans.

Fortunately, a specialized product by the name of debt consolidation loans exists to accommodate the millions of students nationwide who rely on loans to fund their education and to pave the way for their financial peace of mind.  It avoids the need to deal with multiple loans with various interest rates, schedules, amounts, and terms from different creditors and simplifies the repayment process.  Federal student loan consolidation involves the bundling of several federal student loans into a single, easy-to-manage new loan.  What follows is an overview of these programs that spell relief, namely student debt consolidation loans.

The following types of federal loans qualify for student debt consolidation:

• Perkins loans
• Subsidized and unsubsidized Stafford loans
• Federal Parent Loans for Undergraduate Students (PLUS)
• Federal Grad PLUS loans
• Subsidized and unsubsidized Federal Direct loans
• Federally Insured Student Loans (FISL)
• National Direct Student Loans (NDSL)
• Loans for Disadvantaged Students (LDS)
• Federal Supplemental Loans for Students (SLS)
• Health Education Assistance Loan (HEAL)
• Auxiliary Loan to Assist Students (ALAS)

Private student loans are ineligible for consolidation.  Student loan consolidation may be effectuated during loan repayment or the loan’s grace period, the latter being the six-month time frame following graduation or the change to half-time enrollment and preceding the repayment period.  Debt consolidation loans offer a host of benefits including the following:

1. A locked-in interest rate. Student loan consolidation enables borrowers to avoid fluctuations and increases in the rate of interest by ensuring a fixed interest rate that is set by the federal government for the term of the loan.  The new loan’s interest rate is based on the average of the consolidated loans’ rates at the time of consolidation and is rounded to 1/8th of a percent.  The new loan’s interest rate is capped at 8.25%.

2. Simplified, hassle-free loan repayment. Instead of multiple monthly bills with different due dates from a variety of lenders, student borrowers who consolidate make only one payment to one creditor.

3. Reduced monthly payments. By expanding the repayment period, student debt consolidation loans significantly lower borrowers’ monthly payments by as high as 60 percent.  Borrowers who consolidate are offered a choice of payment plans that are customized to their income level and student loan debt amount.

4. Flexible repayment options. The repayment term on debt consolidation loans ranges from 10 to 30 years, thus offering graduates the opportunity to repay their debt at a comfortable pace and at their own convenience.  Borrowers may select from the following repayment options:

• Standard repayment, in which they pay the same monthly amount for a period of up to 10 years
• Extended repayment, in which they pay a specific monthly sum for a period ranging from 12 to 30 years depending on the amount due
• Graduated repayment, in which they make low-interest payments during the first few years, after which the payments increase to a level repayment scheme
• Income contingent repayment, in which monthly payments correlate to the borrower’s yearly adjusted gross income

Prepayment penalties may not be imposed on borrowers who make extra or early payments on their consolidated loan.

5. Credit boost and lower debt-to-income ratio. A smaller monthly student loan payment can improve a borrower’s credit rating.  This is because consolidation wipes out open lines of credit, which results in the pre-consolidated loans being reported as paid in full.

6. Discounts for the borrower. Numerous lenders extend discounts such as interest rate reductions- typically .25%- for borrowers who pay on time and authorize electronic debiting.  Another common discount is for borrowers who consolidate during their grace period (usually .6%).

Borrowers may apply for debt consolidation loans online, by phone, or in person.  There are no origination or application fees, and a credit check is usually not performed.