Private Student Loan Consolidation Vs Federal Student Loan Consolidation

Many students and former students have probably heard about loan consolidation, federal student loan consolidation or other ways of combining student loans into a more manageable payment.
At the same time, it is a misunderstood topic because of the wide array of student loans that are given to students, and the different rules regarding their consolidation. In this article, I'll attempt to clear up some of the difficulty regarding this topic, and provide some insight into those wishing to consolidate.

What is student loan consolidation? 

 While many of you have undoubtedly heard or seen TV commercials for bill consolidation, debt consolidation and other types of payment relief, loan consolidation has nothing to do with any of those options. Simply put student loan consolidation is designed for one type of debt, those loans that were obtained specifically for the purpose of going to school, almost always for higher education.
Unlike Auto loans or Mortgage loans, students will often access a wide variety of loan types to obtain the total funding needed to complete the financial picture of obtaining a degree. Loans are obtained from different sources, such as the Federal government, private banks, and other entities at different times during the course of a college career. Usually, once the degree is completed, or the student has otherwise separated from school, they may have a confusing patchwork of loans with different amounts, rates and terms. Usually, this can add up to a hefty payment once school is complete and the 6 month grace period has expired. Consolidation allows students to combine all of these loans into one loan with a lower, single monthly payment.

Which is better Private or Federal Student Loan Consolidation? 

 The short answer is that Federal student loan consolidation is always going to be a lower rate and less expensive option because the government backs the loans and consolidating federal loans is easy, painless, and essentially cost free as long as you are qualified. The key element to remember here is that most students have combination of private and federal loans. Because you cannot include private loans in a federal consolidation, a federal consolidation only partially solves the problem for many students.
A private consolidation may also help you out in terms of your monthly payment, but is not assured to do so primarily because the entire consolidation has higher qualification requirements and is not backed by the Federal government or the Department of Education.

Hopefully, this brief overview has helped you sort out some of the differences between the different type of consolidation loans that are available for students. To learn more detail about these private student loan consolidation and  federal student loan consolidation, check out the link below.

Neal Coxworth is an entrepreneur and a 17 year veteran of the consumer credit industry with experience in originating, underwriting and processing mortgage, student and consumer credit loans. He publishes an informational blog for consumers to provide insight and analysis to all major loan types as well other topics such as credit history, that most consumers will face.

Consolidating Private Student Loans

Tuition fees are continually on the increase, so it has now become expedient for any college student to rely on student loans in order to study for a degree. However, repaying student loans tends to be quite hard for students to do, most of all in the beginning where their income is still much lower compared to what they could actually be earning. That's why consolidating student loans is a great option for a lot of new college graduates to look into.

Consolidating private student loans pretty much works like any other consolidation program.

One singular lender will take on several loans that you may have accumulated, such as HEAL, NSL, Perkins, Stafford, and other private loans.
The actual repayment conditions and terms may differ among these various lenders; one singular company will pay off all your loans and replace them with a single loan to pay off over a long-term. Generally, students choose to go for repayment plans that last a decade or three. Naturally, if you take a longer term, your payments per month will be lower too.

Student loan consolidation provides you with a chance to stretch all your payments in order for you to take full advantage of what you could be earning in the future. It is fairly reasonable for a lot of students to assume they can earn more money as their career progresses, so by stretching out all of the repayments, they will not have to worry about paying the majority of the loan during the earlier period of the loan. Another advantage in programs of consolidating student loans is the fact that they get rid of a lot of problems and confusion when it comes to paying back student loans.

For fresh graduates whose loans stem from various private and public lenders, trying to keep up with one-of-a-kind conditions and terms of each loan could prove to be quite frustrating. Because of this, one well-known option exists; however, this option comes with a cost.

Any kind of loan consolidation tends to be very attractive to lenders since they can ask you for fairly high fees for consolidation. While the consolidation of student loans comes with better regulation than the majority of other forms, loan consolidation companies are still capable of adding some fees to the loan's principal, which you will have to pay off later.

You can avoid all this by insisting on paying every consolidation fee straight up. By doing so, you make sure that at least you know how many charges you are getting. Another predicament that may come with consolidating loans is that although you can extend it up to fifteen years, your interest will significantly increase on the loans. Interest accumulates as time goes by, meaning that if you delay paying off the loan, you will get accrue more interest.

A lot of students do not seem to notice that fact and only concentrate on the rate of interest instead of the overall interest amount that needs to be paid off through the loan's life.
Consolidating private student loans is an essential tool for any student who wishes to defer the repayments until more money becomes available or for those who find it difficult to manage several single loans. However, it is still essential for fresh graduates to take all points under consideration, no matter what other lenders may say to you. Be aware of both the pros and cons of consolidating private student loans, so you can come up with smart decisions on whether consolidating students loans is an ideal choice for you.

Paying for College: Student Loans or Credit Cards?

Research conducted by student loan company Sallie Mae shows that in 2010, about 5 percent of college students paid an average of more than $2,000 in tuition and other educational expenses using a credit card to avoid taking out student loans. The same study showed that 6 percent of parents used credit cards to pay an average of nearly $5,000 in educational expenses for their college children.
Is using credit cards a smart way to avoid college loan debt? Financial advisors are in near-universal agreement that the answer is no, but that isn't stopping thousands of families from using credit cards in place of parent and student loans.

Some families might think that all debt is equal; others might think that they won't qualify for college loans. So what advantages exactly do education loans offer over credit cards?

1) Availability
Particularly in the last few years, as credit card companies have tightened their credit requirements in a retraction of the lax lending that led to the foreclosure crisis, credit cards have become harder to qualify for, available mostly only to consumers with strong credit. Many consumers with weaker credit have had their credit lines reduced or eliminated altogether.
Federal college loans, on the other hand, are available with minimal to no credit requirements. Government-funded Perkins loans and Stafford loans are issued to students in their own name without a credit check and with no income, employment, or co-signer required.
Federal parent loans, known as PLUS loans, have no income requirements and require only that you be free of major adverse credit items - a recent bankruptcy or foreclosure, defaulted federal education loans, and delinquencies of 90 days or more.
In other words, don't turn to credit cards simply because you think you won't qualify for school loans. Chances are, these days, you're more likely to qualify for a federal college loan than for a credit card.

2) Fixed Interest Rates
While most credit cards carry variable interest rates, federal student and parent loans are fixed-rate loans. With a fixed interest rate, you have the security of knowing that your student loan rate and monthly payments won't go up even when general interest rates do.
Many credit cards will also penalize you for late or missed payments by raising your interest rate. Federal school loans keep the same rate regardless of your payment history.

3) Deferred Repayment
Repayment on both federal student loans and federal parent loans can be postponed until six months after the student leaves school (nine months for Perkins undergraduate loans).
With credit cards, however, the bill is due right away, and the interest rate on a credit card balance is generally much higher than the interest rate charged on federal school loans.
If you're experiencing financial hardship, federal loans also offer additional payment deferment and forbearance options that can allow you to postpone making payments until you're back on your feet.
Even most private student loans - non-federal education loans offered by banks, credit unions, and other private lenders - offer you the option to defer making payments until after graduation.

Keep in mind, however, that even while your payments are deferred, the interest on these private student loans, as well as on federal parent loans and on unsubsidized federal student loans, will continue to accrue.
If the prospect makes you nervous of having deferred college loan debt that's slowly growing from accumulating interest charges, talk to your lender about in-school prepayment options that can allow you to pay off at least the interest each month on your school loans so your balances don't get any larger while you're still in school.

4) Income-Based Repayment Options
Once you do begin repaying your college loans, federal loans offer extended and income-based repayment options.
Extended repayment plans give you more time to repay, reducing the amount you have to pay each month. An income-based repayment plan scales down your monthly payments to a certain allowable percentage of your income so that your student loan payments aren't eating up more of your budget than you can live on.
Credit cards don't offer this kind of repayment flexibility, regardless of your employment, income, or financial situation. Your credit card will require a minimum monthly payment, and if you don't have the resources to pay it, your credit card company can begin collection activities to try to recover the money you owe them.

5) Tax Benefits
Any interest you pay on your parent or student loan debt may be tax-deductible. (You'll need to file a 1040A or 1040 instead of a 1040EZ in order to take the student loan interest deduction.)
In contrast, the interest on credit card purchases, even when a credit card is used for otherwise deductible educational expenses, can't be deducted.
To verify your eligibility for any tax benefits on your college loans, consult with a tax advisor or refer to Publication 970 of the IRS, "Tax Benefits for Education," available on the IRS website.

6) Student Loan Forgiveness Programs
Whereas the only way to escape your current credit card debt is to have it written off in a bankruptcy, several loan forgiveness programs exist that provide partial or total student loan debt relief for eligible borrowers.
Typically, these loan forgiveness programs will pay off some or all of your undergraduate and graduate school loan debt in exchange for a commitment from you to work for a certain number of years in a high-demand or underserved area.
The federal government sponsors the Public Loan Forgiveness Program, which will write off any remaining federal education loan debt you have after you've worked for 10 years in a public-service job.
Other federal, state, and private loan forgiveness programs will pay off federal and private student loans for a variety of professionals - veterinarians, nurses, rural doctors, and public attorneys, among others.
Ask your employer and do a Web search for student loan forgiveness programs in your area of specialty.

student loans, tax benefits for education 

Jeff Mictabor is an enthusiast on the topic of student loan issues in the news. He has been writing for the past 10 years for a variety of education publications. He now offers his writing services on a freelance basis.