Private & Federal Student Loan Debt Consolidation

Private & Federal Student Loan Debt Consolidation
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Need is the sole criteria that lead to assistance aided by the government in the modern times. It can be held true when it comes to student educational needs, every country’s government has adopted significant plans to make sizable investments on them.

Whenever you, as a student, apply for a financial assistance, your fiscal situation goes under scrutiny and finally the need for a student loan is identified. When your family or you yourself are not in a position of financing your education, this is where a student loan comes to your rescue. So, without any further ado, let us get to know all those things that you need to be knowing about the student loans.

Student Loan Debt Statistics for 2016

What is Student Loan Consolidation?

Being a student, you must have given a thought of using a student loan and how you would like to pay them off. You must have gone through various loan-related blogs, articles, and you have even contacted loan counselors, but coming to a final decision wasn’t smooth sailing for you.

Consolidation simply means the combination of multiple loans in one single loan. Post consolidation, you will have one interest rate and the best part is that you only have to make one monthly payment. Debt Consolidation really simplifies your life and the main reason most of the people decide to do is to have a fixed lower interest rate so that they are able to pay off their loan faster.

Same goes for the student loan consolidation as well. But, you can’t consolidate federal student loans with your other debts. On the other hand, private student loans allow other debts to be easily consolidated with the student loans such as including them into the home equity loan. This is where we discuss Federal Student Loans and Private Student Loans.

What is a Federal Student Loan?

Federal Student Loan – Federal Student Loan really makes the college economical both for you and for your parents. The best thing about this loan is that it offers more benefits. As the name is self-explanatory, Federal Student Loan is made by the Department of Education, making it a more trustworthy option. In 2010, when Education Reconciliation Act was passed, Federal Direct Loan Program became the only program that enjoys the support of the US Government.

What are the advantages of Federal Student Loan?

Let us now discuss the main reasons behind the immense popularity of Federal Student Loans –

  • Easy Payments – Talking about Federal Student Loan, you don’t need to handle multiple payments and different lenders as you will have single monthly payment and a single lender as well.
  • Free of Cost – You don’t have to worry about paying hefty fees for Federal Student Loans as they are completely free.
  • Low Monthly Payments – For the repayment of your loans, you may be given ample time and most of the times it also results in lower monthly payments.
  • Fixed Interest Rate – You get to enjoy fixed interest rate. Now, this means that you don’t have to worry about the changing interest rates.
  • No need of credit history – These loans are easily accessible to any enrolled undergraduate who is seeking financial assistance. All you need is to fill out the free application for Federal Student Aid.

Loan gets canceled if you die – In case you become permanently disabled or you die, the government will expel your federal loans. This means that you no longer have to repay your loans.

Repayment Options Galore – Federal lenders will offer you multiple repayment options considering your income and situation. Options comprise of –

  • Income-Contingent Repayment.
  • Income-Based Repayment.
  • Cancellation/Discharge (this means that some part of your loan balance gets waived off).
  • Deferment (this means you get postpone payments for a set period of time and the best part is that the interest does not accumulate).

What is a Private Student Loan?

Private Student Loan – The functioning of the Private Student Loan is different from Federal Student Loan. There are banks and credit unions involved in the framing of this is a type of loan. These financial entities are responsible for paying post-secondary education. Generally, the parents cosign on such loan for you.

What are the advantages of Private Student Loan?

In this section, let us discuss as why you should choose Private Student Loan –

Flexibility -Private Student Loans can be taken by your parent, your relative, or any trustworthy individual.

No Limitations – These loans are provided directly from the bank or the lender, your institute cannot place any form of limitation on the amount that you are borrowing or for what it is being used for.

More Borrowing – The funds are directly distributed to you and you have more borrowing power so that you get to pay for your tuition.

What is the relation between student loan debt consolidation and your credit?

Whenever you think about unsecured debt, both federal and private student loans will serve as the best examples. If you have a fair knowledge about the unsecured debts, then you will understand that they are supported by some collateral such as a house or a car. Such debt is also given more importance by the lenders.  Most of the times, student loan debt is believed as a good debt as it signifies a form of investment in your future.

If you are consistently making timely payments for your federal or private student loan then having this type of debt will actually come handy in strengthening your credit rating. Let us say if you have chosen to consolidate your student loans, you should cut down your operational accounts; this step will surely boost your score considerably.

Frequently Asked Questions about Federal Student Loan Consolidation –

Let us first get to know about the frequently asked question about Federal

Student Loan Debt Consolidation FAQs

What types of federal student loans are eligible?

As per this program, only direct federal student loans are eligible for the consolidation.

When can I expect my loans to be consolidated?

Generally, the will be able to consolidate when you have completed your graduation and when you have left your school.

Will there be any change in the interest rate?

If you are going with Federal Consolidation, you can rest assured that your interest rate won’t undergo any change. And this will happen only when you have the reputation of being a trustworthy borrower; you may want to go for the option of private consolidating or refinancing student loans.

If I use Federal Consolidation, will it change my repayment choices?

Entirely depending on your consolidated loan balance, the Federal Student Loan debt consolidation will permit you to initiate an extension your repayment. You can even extend your time period from ten years to thirty years. This may help in bringing down the payment you make on a monthly basis, but on the negative side, it will raise the total amount that you pay over the longer term.

When can I expect the repayment to begin?

The repayment will start off immediately. In some cases, the users have received their first bill within 60 days of your consolidation loan’s approval and disbursement.

Is there any way to re-consolidate my Federal Student Loans?

Well, re-consolidation is not possible.

Is there any application fee for applying?

If you are going for Federal Student Loan Consolidation, you don’t need to pay anything.

What if I want to apply for Federal Consolidation Loan online?

Yes, you can apply online as well.

How do I get to know more about before I actually apply?

You can gain holistic information about the Federal Consolidation process and about your available options through the Department of Education.

Private Student Loan Consolidation FAQs –

Following are some of the common queries about Private Student Loan Consolidation –

When can I expect my loans to be consolidated into a private loan?

Usually, consolidation is expected when you have completed your graduation or you have left your school.

Is there any possibility of lowering down my interest rate?

This is dependent on two key things – your creditworthiness and credit rating.

Is it possible to consolidate both the loans in one sole loan?

No, this is not possible as Federal Loans have their own programs as compared to the Private Loans. Moreover, the benefits and the interest rates are also not the same.

What should be my queries while considering Private Student Loan Consolidation?

Make sure you have inquired about the interest rates and whether they are fixed or variable. Make sure you have asked whether the Private Student Loan Consolidation is attached to your credit scores as well. It is important you are aware of any fees that need to be paid.

Is there any provision of doing IBR (Income-Based Repayment) after consolidating student loans?

Yes, for Federal Student Consolidation Loans, this is possible and for other repayment programs as well. It does not matter whether you have regular federal consolidation loans or not, it is imperative you have proved your financial difficulty in order to qualify for IBR.

What are some of the common Student Loan Refinancing Myths?

If you are facing a hard time paying your student loans, it is not a thing that should be taken lightly as it can also make your life stressful. Most of the students choose to consolidate their student loans in order to have some relief from the high monthly payments.

When you are unaware of the ins and outs of the student loan forgiveness, having a nervous feeling is quite obvious. The things get worse when you get to hear about various myths and misconceptions. So, this is where I am going to discuss some of the common myths you should be aware of –

Myth #1 – Student loan can be refinanced by any student who has a student loan.

Well, it has both a yes and a no. When we talk in a broader sense, then it is possible for any student to get their loans refinanced and has the chance of applying. But, in the small sense, not every student can. In fact, before you even go ahead with refinancing your student loan, it is advisable you have checked the requirements.

You will come across some lenders who will only go ahead with the refinancing option if you have an impressive credit history, valid income, and good credit score. The whole process of refinancing can be arduous if you haven’t met the minimum credentials, so make sure you have done some research work at your end before applying.

Myth #2 – You are stuck with the Federal Student Loan.

Most of the people are of the view that you cannot refinance a student loan, but this is what we are discussing here a myth. Yes, who said that you can’t finance your federal loans and above all, it may prove helpful if you do so. If you go with the option of refinancing, your federal student loans will be paid off and you will offer a fresh student loan.

Myth #3 – People think that student loan refinancing and consolidation are the same.

This is incorrect. Student loan Consolidation can be defined as a process in which your multiple loans are combined in one single loan. Refinancing is also a process where you will be working with a new lender and he will be paying your current student loan and afterward you will be issued a fresh loan. Just remember that these two are completely different and you are having the right knowledge about both of them before applying.

Myth #4 – A longer term basically means higher interest.

If one of your friends has refinanced his/her loan and now they have a longer term, you might be thinking that your friend will be paying more in the longer run because of the high-interest rates. But, this is just a myth as you actually get to pay less or the same amount, as you are already paying, even when you have extended your loan term. As per this process, the moment the loan gets refinanced, you will get a lower interest rate. Therefore, the length of the loan can be increased and you don’t even have to spend additional money in the longer run.

Myth #5 – Federal Student Loans can be financed via federal government?

Both the federal and the private loans can be refinanced but by a private lender. Although student loans are being offered by the federal government but they don’t refinance the student loans. You will find some states have made their own refinancing programs, but even behind those programs are the private lenders.

Myth #6 – The process of consolidation is identical for both the federal and private student loans.

Be informed that the private student loan debt consolidation is done by a private lender and federal loan consolidation is carried out by the government. Let us assume you have both the federal and private loans and you are interested in consolidating federal with the private loans in one single loan, but the experts don’t recommend this consolidation.

If you are looking to consolidate federal student loans, make sure you have applied for a federal direct consolidation loan. You should know a federal loan consolidation won’t help you in bringing down the interest rate.

What comprises Borrower protections?

You get to enjoy borrower protections if you have elected Federal Consolidation loans but unfortunately but private lenders don’t offer this. These commonly comprise of Deferment, this can be defined as an ability to suspend the payments under special situations such as unemployment, military duty, or higher studies, etc. And secondly, Forbearance where you can postpone the payments if you facing financial hardship.

The borrower protections in Private student loan Consolidation is set to vary from lender to lender. As a borrower, you should ensure you have kept your distance from consolidating both federal and private loans. If you still go ahead and consolidate both the loans, you will not be able to have the privilege of federal protections.

So, if you are a student then the above-discussed information will surely come handy in getting familiarized with student loan consolidation.


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