Undergrad Debt Solutions
Find Out if Consolidation is Right For You
The financial aid lifecycle does not stop once you’ve hit campus. Student loans live on for a long time. Once you graduate or drop below half-time status, your repayment kicks in. And recent reports on student loan debt are not optimistic.
Millions of undergrads apply for federal student loans each year and an alarming number even apply for high cost private loans. The federal Stafford Loans are the single most widely disbursed student loan.
Once you graduate you have a brief six-month grace period before your loan repayment kicks in; or you may defer loan repayment and head back for a graduate degree. As long as you’re enrolled in school on a greater than half-time basis you may put off loan repayment, but it will never just go away. If you are like most students you will graduate and get a job and the closer you creep toward loan repayment the more you’ll bite your nails with anxious reluctance.
**A big part of loan repayment is making sure you know how to manage your loans responsibly and loan consolidation is a part of responsible debt management.
General Federal Consolidation Loan Terms
Two types of federal student loans exist: William D. Ford Direct Federal Loan Program and the Federal Family Education Loan Program (FFELP). Both programs offer a slightly different version of a federal consolidation loan, but they share a number of terms set by the federal government:
- Since July 1, 2006 federal consolidation loans feature fixed interest rates. The government calculation takes the weighted average of all your federal loan interest rates as of the day you apply to consolidate, then rounds up to the next 1/8th. Rates may not exceed 8.25.
- Federal consolidation loans are fee-free and are non-credit based.
- Students must be out of school before applying for a federal consolidation loan.
Consolidate Federal Undergraduate Loans
Even though there are two types of federal student loans, you may find you have both. Here is how you might consolidate them:
- Direct Federal Consolidation Loans are available to undergraduates with at least one Direct Federal Loan or a FFELP loan that has been deemed ineligible for consolidation through a private lender. Borrowers often may include defaulted loans in a Direct Consolidation Loan.
- Federal Consolidation Loans are available through many FFELP lenders, but not all. A few lenders may require you already be a customer to qualify.
Consolidate Private Undergraduate Loans
A growing number of undergraduate students are turning to private student loans to fill in the tuition and college cost gaps. In fact many lenders make the process so simple and allow you to bundle in all kinds of expenses that it’s hard to refuse the temptation. Almost any lender that offers a private student loan will also offer a private consolidation loan. But you might benefit from shopping around. Lenders have a bit of leeway when it comes to including borrower perks—you could save yourself a few bucks if you shop right. While you’re looking, keep these factors in mind:
- Some private lenders allow you to bundle auxiliary educational loans you’ve taken out, for high-dollar items like textbooks and computers, in with your consolidation loan.
- A private consolidation loan, regardless of lender, will require you have very good credit or else apply with a co-borrower who does.
- You will have to have a minimum amount of private loan debt to apply as well. A common figure is $7,500.
- And look for added fees that could up your costs.
- Interest rates are usually variable. Shop around for the best incentives including deductions for consecutive on time payments and/or setting up automatic payment deduction plans.
- Also make sure you will not be hit with a fee for early repayment.
**If you allow your private loans to enter default, you will be ineligible for almost every private loan consolidation available. Solution: consolidate loans well before you get to the point of default.
