As we went through many programs related to student loans, we learned that the situation is worse than we might even predict. Millions of students each year take loans to pay their university tuition fees. And one portion of those students uses student loan consolidation programs to extend the payback time. For them, it is better to pay in a long time rather than paying less. Turning the other side of the argument, they do not have much choice. The student loan consolidation seems attractive, beneficial for everybody. In reality, it is only beneficial for private companies who supply money. But at the time the loan period extended and a small amount of money every other month causes more trouble. Parents, if they are signed as a cosigner and students wait a long time for finishing the payback period. Nonetheless, consolidation has several beneficial sides as well.
Which loans can be consolidated?
- Both subsidized and unsubsidized federal loans
- PLUS loan under Federal Family Education Loan
- Federal Perkins loans
- Nursing student loans
- Nurse Faculty loans
- Nonsubsidized Stafford loans
- Direct Plus Loans
- Health profession and education assistance loans
- Guaranteed student loans
- National Defense Loans
- Parent loans for students
Before going into deeper
Before going into deeper what does student loan consolidation is and how does it work, let me explain some basics about loan consolidation. Loan consolidation is designed for students with loan debts. The philosophy behind the consolidation is helping the student to pay less amount of money per month and spread this amount into several years. Let’s say if the loan repayment program requires to pay $400 for one student, with loan consolidation it will be $100 and maybe even less. The companies which help students in their loan refinancing and consolidation, end up with earning a lot. Why? Because there are interest rates what makes banks to be interested in loans.
The interest rates are what added up to the actual loan and if a payment gets defaulted even a day, then accruing happens. Accruing it the accumulation of interest rates on the real investment and increasing the amount of loan. After a while, your accumulated loan amount added up to the exact amount. It means, even after paying back the massive amount of your loan you can see the same amount of loan on your credit balance which is possible with accruing.
Moreover, the consolidation will help you to summarize your interest rates. The nearly average interest rate you will have for just one loan. That amount is the sum or most of your loans. Calculainterestting the total interest rate is smooth and was described in our previous posts. To conclude, the consolidation only causes you to pay in several more years but will simplify the process and helps you to pay for one loan instead of multiple also.
More specific information about all programs
The government provides federal loans for aiding students in their university degree financing. The public sees this type of loans more reliable and trustworthy because in that case, the provider is the Department of Education. This type of loans is called direct investments as well. Those loans have two types, subsidized and unsubsidized. Subsidized loans do not involve interest rates. The government is paying interest rates instead of the student. While the unsubsidized loans require interest rates. If you have both types of loans, you cannot only consolidate subsidized loans. The amount you choose for the consolidation must include both of them. There are many corporations to work as a servicing company, helps students to consolidate their loans.
These loans offered for the parents whose child or children study who accepted to the degree at least a half of a year at the university. Students do have to be enrolled in a professional university or a graduate degree and institutions. The PLUS loans changed their interest rates to a fixed price at 2016, but this rate was still higher than previous. Importance of the fixed interest rate is that you do not worry about paying more in the center of the payment period. The PLUS loans are part of a direct loan program, and the rate is usually 7.6%.
There is another type of loan called Perkins loan. This loan is federal student loan as well is a need-based loan. The loan offers an interest rate of 5% and the payback time can be stretched to 10 years. Via Perkins Loan graduate students can get $8000 per year and up to $60.000 for their entire study period. The Perkins Loan can be referred to as the student loan consolidation program.
Both the Perkins Loan and the PLUS loan have several similarities and differences. Similarities are that they are federal student loans and can be consolidated. Differences are:
- The Stafford or Direct PLUS loans do include the cost of living in the price of attendance. The Perkins loan does not apply for only parent payment during the undergraduate degree. Direct PLUS loans require parents to be a cosigner for their children’s student loan if they are undergraduate students.
- Repayment politics is not fixed; every student can pay a variable amount of time with Direct Plus Loans. But it has to be consulted and agreed with the servicing company.
- The Perkins Loan can be canceled while this rule is not the same for the Stafford Plus Loans.
The public service loan forgiveness programs are designed for helping students who will work in public services like a teacher, nurse or lawyer. Those loans are usually giving to students with work experience. The companies help students to find a workplace. Often these places are where a few teachers or nurses work. This policy both serving for the improvement in those regions and helping the future workers to learn and get real-time practice. People who accept to work in places where nurse shortage is observing might get slightly less severe conditions.
More about consolidation and refinancing
Unlike a student loan consolidation, the student loan refinancing can be implemented to both private loans and federal loans. You can refinance your one or all student loans. And as it was the case with a consolidation, if you refinance your loans, you lose your chance of being treated as a federal loaner. The federal loan offers you a variety of options, sometimes forgiveness due to the misconduct or unreliable management of the federal Department of Education.
Differences between refinancing and consolidation
The reporter on the Forbes, Zach Friedman says there are many differences between refinancing and student loan consolidation.
- If you consolidated your loan with the federal loan consolidation via a company which contracted with the government for its services your interest rate will not increase. Instead, it will be an average or ⅛ difference of the average. When refinancing your interest rate will fall. If you took a loan in the past and paid t in time without any delay during payment, then your refinancing options will be much better.
- If you are eligible for the student loan consolidation, the average payment period is ten years. However, if you would like you can choose income-based payment, PAYE or REPAYE which will result in up to 10 more years payment. But the refinancing can offer you variable payment time from 5 years to 20 years — shorter payment period more monthly payment, more extended period less monthly payment.