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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