Get All Facts Right about Student Loan Consolidation

What Is Student Loan Consolidation?

Student loan consolidation is a repayment plan that combines all the student’s loans into one new loan. As usual, immediately after graduation, many students always think of how to enter in the job market and get lucrative well-paying jobs. Unfortunately, many never think of loan repayments. Data from the national post-secondary student aid study revealed that the average debt among most student borrowers is $17,000 in average. However, many students find it difficult to repay these loans due to harsh economic times. The consolidation plan is therefore a plan meant to combine all the loans taken by students so as to enable graduates repay all the loans as a unit loan. The loan repayment program enables all students to have one monthly loan repayment which is easier when compared to paying different loans every month with interests.

Types of Repayment Options Available For Students Who Wish to Consolidate Their Loans

There are different ways students may choose to consolidate their loans. The most common ways include income based repayment (IBR) plan and pay as you earn (PAYE) repayment plan. In both plans, all the applicants must be in a partial financial difficulty.

Income based repayment (IBR) plan helps students whose loan debt is high relative to their income and family size. It covers subsidized and unsubsidized loans, Stafford loans, direct consolidation loans, student plus loans and federal family educational loan (FFEL) and consolidation loans that are not meant for parents. However, parental loans, private loans and plus loans to parents are not legible. IBR establishes a 25 year repayment plan of up to 15% of the applicant’s discretionary income.

On the other hand, Pay As You Earn (PAYE) monthly payment is calculated depending on; the amount you owe on your loans, the size of your family, your federal income tax filing status, your adjusted gross income and your legal residence. The repayment period for this student loan consolidation period is twenty years. Besides this, PAYE’s payment method takes 10% of the applicant’s income.

What Are The Benefits of Student Loan Consolidation Program?

There are quite a number of benefits that come when one consolidates all their university loans. They include:

#1. Lower Payments

Once a graduate combines all their loans into one, it becomes very easy to pay as compared to when one has to pay for multiple loans at ago at different interest rates. Loan consolidation is also cheaper since the interest rates are lower as compared to paying for each individual loan.

#2. No Overpayment Penalties

Unlike other loans, consolidated loans for students do not attract any penalties even if you make your payments as high as you can. This means that one can decide to pay for all your loans within a short period of time and turn to other vital issues like investments.

#3. Single Creditor

When one joins student loan consolidation plan, they make payments to just one creditor. In case of any problems, you will just have one lender unlike having to deal with several when paying each loan individually.

#4. Availability of Forgiveness Programs

Both IBR and PAYE offer loan forgiveness although their periods do differ. The plans are meant to benefit those students who may not be able to complete their loan repayments on time.

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