Eligibility for federal student loan consolidation
You are eligible to consolidate federal student loans when:
You are no longer enrolled in school (defined as being enrolled
less than half time)
You must be in the "grace period" of the loan or must
be actively repaying your loan.
Most consolidation companies require a minimum loan amount, $10,000
is typical.
The difference between federal and private student loans
Federal student loans have advantages over private loans. For example,
interest on the loan is tax deductable, the loan can sometimes
be forgiven for certain types of service, and you can sometimes
defer payments on the federal loan if you go back to school. Private loans don't have these advantages - they are really just
loans either secured or unsecured, and you have to pay them back
just like any other loan. So, it's important to not consolidate federal and private loans
together. Consolidate all your federal student loans first, then
separately consolidate your private loans. If you were to mix
the public and private loans you would have to take out a single
private loan that loses all the benefits of the federal loans.
Keep government
student loan consolidation separate from private loan consolidation.
Student loan debt
About 50% of recent college graduates took out student loans, with
an average borrowed around $10,000 (ref. 3). In the last three
years, rates have fallen very low. As of fall 2003, Stafford loan
interest rates were in 3-4% range (ref. 2). Consolidation interest
rates can be much lower (under 2%), but this comes with very specific
requirements - like good repayment history. Like any debt, student loans can influence your credit and your
future decisions. Students who borrowed a substantial amount for
college (more than $5000) are less likely to pursue higher education
(ref. 3). In addition, student
loan debt that exceeds 8% of your income can be seen negatively
when your credit gets assessed for future loans. Two ways to reduce the debt burden are: 1) reduce or eliminate
the principal balance. Specific types of loans can sometimes be
forgiven by service or other higher education - look into the
specific student loan program you have. 2) Reduce your monthly
payment. Since debt burden is measured by comparing your loan
payment to your income, reducing your payment helps your credit
evaluation.
References and Links
School
loan consolidation - Information on eligibility and rationale
for consolidating (or not consolidating) your student loans.
1. Federal
Student Loan Consolidation Federal Student Loan Consolidation
can reduce your student loan debt by fixing and reducing the interest
rate on your loans. Consolidating separate loans with a single company
simplifies payment and debt management options.
2. Consolidation
recommendations of the University of Michigan Law School
3. National Center for Education Statistics
4.
AAMC - financial planning information for pre-meds, medical
students and residents.
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