Student Loan Consolidation Center
According to a recent article in the New York Times, many lending institutions are cutting back their participation in the federal student loan program. Once highly lucrative, federal student loans have become less profitable and consequently less popular with lending institutions as a result of recent legislative changes that reduce lender federal subsidies. With some of the nation's lenders declining to make federal loans to students attending certain types of institutions that lenders deem 'less-selective,' students who already have loans with one lending institution may have to borrow from a different lender. Consequently, more borrowers may be turning to loan consolidation to manage multiple payments to multiple lenders.
However, students concentrate on studies, and not on loans. Loans have been availed of merely to continue the process of learning, which in the absence of the loan, would have come to a dead end. Yet consolidation of such loan or loans appears to be a vital issue for the student to carry on further studies peacefully and without hassles. Fortunately for the student, there are several ‘not-for-profit’ corporations or groups in the United States that look after the students’ interest by consolidating their loans. Most of these student loan consolidation centers help thousands of student borrowers in maintaining a low fixed interest rate for the life of the loan. There is no obligation, origination fee or pre-payment penalties attached to their program. Their consolidation specialist representatives are ever happy to provide the student with all the relevant information needed to take a decision. They may also provide a program that can help cut the monthly payments on student loans by around 50%.
Loan consolidation, apart from its soothing effect, is beneficial to the student in several ways that include
For the greater interest of the student community, the matter should be explained in detail which is given below.
- Reducing monthly payment by up to 50% so that the student can spend the rest of the money in other constructive activities
- Lowering the debt to income ratio, thereby increasing the lending power
- Providing a fixed interest rate
- Providing no pre-payment penalties
- Arranging choice of payment plan (equal, graduated, etc)
- Making portion of interest tax-deductible
- Making a single organization service the loan all through
- Charging no fees for the consolidation program
- Keeping the forbearance and Deferment privileges available all the while.
Despite so many redeeming features that are linked with student loan consolidating matters, there remain a few questions which need more practical probe; some of which are provided here in FAQ form for the benefit of the students.
- Reducing monthly payment means by consolidating the loan, there is a marked reduction of payments each month which, in certain cases, may go up to 46% or nearer. This obviously leaves the student with extra cash in his/her pocket every month, enabling the student to buy things that are badly needed but remained beyond the reach earlier.
- Lowering the debt to income ratio automatically enhances the lending power since the income side gets more highlighted here.
- Having a fixed interest rate today is a boon since one never knows when it can abruptly go up. With a fixed interest rate, increases in market interest rate do not add extra dollars to the student’s monthly payment as they do with flexible rates. Besides, it gives one the much needed peace of mind to concentrate on studies.
- Experience tells that making a single organization handle the loan is a much better option than several people asking for payment. Here it is a case of one lender, one payment. For most students, it is a great relief.
- Since no fees are charged for the consolidation program, a lot of hassles get automatically resolved. Students often fall victims to unauthorized loan consolidators that charge a certain percentage as consolidation fees. Even at a low percentage, the figure can be considerable when the entire loan amount is considered.
- Since a portion of the interest is tax-deductible, it lowers the cost of borrowing too. Besides, the government allows a special deduction for interest paid on student loans (also known as Education Loan). This deduction will reduce the taxable income up to a limit of $2500 (as in 2006).
Q. Is consolidation the answer?
A. It depends on several factors. However, one can take a look at the following pros and cons when considering loan consolidation.
Pros: Consider consolidation if
A consolidation loan will entitle you to additional benefits including lower interest rate on some loans, provide access to flexible repayment plans and different deferment and forbearance options.
- you make multiple monthly payments to sundry lenders and are looking for a single monthly payment and/or a lower monthly payment
- Your monthly payment amount is unreasonably high when compared to your income
Cons: Consolidation may not be the answer if you have only a few payments left. In other words, if your loan is close to being repaid, consolidation is not the right answer. It may lower your payment rate but would extend the repayment period, thereby increasing the repayment with additional interest that is to be paid.