There's Hope for Saving on College Debt
Make it Work
Millions of Americans borrow money using student consolidation loans each year. They borrow money to pay off high interest loans, combine multiple student loans and to cut their unmanageable monthly expenses. Many have less than desirable credit. Others wish to avoid a bad credit rating, the cost of delinquent and defaulted student loans. How do they do it?
Federal Consolidation Loans
Nearly every college student carries at least one federal student loan, either through the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program. The purpose of the federal funds is to allow Americans access to college funds when they might not otherwise be able to go to college. Federal consolidation loans are almost all free of the dreaded credit check.
Direct Federal Consolidation Loan
Direct Consolidation Loans have been made an integral component of the Direct Federal Loan Program specifically to assist borrowers with multiple student loans a means to manage the rising costs of a college education. Most Americans juggle multiple student loans. In their decision to consolidate many must take stock of their financial situation. The Direct Consolidation Loan is made directly through the U.S. Department of Education. Essentially your direct loans are paid off and a new loan—the consolidation—is devised. Repayment terms are extended to allow for minimal monthly payments.
The Direct Consolidation Loan only requires a credit review for those borrowers consolidating PLUS loans. The credit review does not rate one's credit, but instead purposely check for "adverse credit history." Interested in a Direct Consolidation Loan? Eligible borrowers must have at least one Direct Federal Loan or a FFELP loan that has been turned down for consolidation through a FFEL lender. Terms of the Direct Consolidation Loans include:
- Fixed interest rate (this is since July 1, 2006) based on the weighted average of your federal loan interest rates on the date you apply for consolidation. The average is rounded up to the next 1/8th percent. The federal government has put a ceiling of 8.25 on the interest rate. Your consolidation loan will have this rate for the full life of the loan.
- Consolidation of multiple direct loans may allow you to cut your monthly costs in half.
- Consolidation loans are fee-free.
- You may be able to consolidate loans that are in Default. Certain terms apply.
Federal Family Education Loan Program
The Federal Family Education Loan Program (FFELP) is widely available through student loan providers and private banking lenders. The FFELP also includes the Federal Consolidation Loan. Nearly every FFELP lender features the consolidation loan. When you apply for the consolidation loan you are basically asking the lender to pay off all the loans you are looking to consolidate and then extend you one loan with a much lower monthly bill attached. If you have poor credit or no credit, you also want a way to consolidate without the credit check. Sounds great, right?
Luckily for many borrowers the FFELP loans, including consolidation, require no credit check, regardless of lender. Each lender bundles their Federal Consolidation Loan with their own incentives, but generally the following terms are considered:
- Consolidate multiple FFELP loans even from outside lenders into one loan, payable monthly. Most consolidation loans are able to cut your monthly payments by almost half.
- No credit checks.
- No attached loan fees.
- Some lenders will give an interest rate deduction for new grads that choose to consolidate within their six-month grace period.
- You will be required, in most cases, to have a minimum amount of debt accrued to borrow, for example $7,500 in FFELP loans.
- Look for interest rate deductions for so many consecutive, on-time payments, and for automatic payment plans.
- You will likely not be qualified for a Federal Consolidation Loan if your loans have already entered default.
Bad Credit Private Student Loan Consolidation
There is no good news for bad credit borrowers looking to consolidate private student loans on their own merit. Legitimate lenders offer their signature private student loan consolidation products, but all require at least a decent credit history.
How can you get around it?
Apply for a private consolidation loan with a creditworthy co-borrower. Look for a consolidation loan product that will allow you to release your co-borrower from the loan after a certain term of consecutive, on-time payments. This way you also have the opportunity to rebuild your credit.
Private student loan consolidation products come bundled with terms specific to each lender. All are typically fitted with a variable interest rate, flexible repayment options, and require you have a minimum amount of private student loan debt to qualify. A few even allow you to include in your consolidation extra educational loans you may have had for computers, textbooks and other costly items.
