Repay Your Student Loans Without Breaking the Bank
"Repay Your Student Loans Without Breaking the Bank" submitted by SchoolGrantsfor Editorial Team and last updated on Friday 22nd July 2011
- Does the word "repayment" mean anything to you?
- Student Loan Consolidation: A Repayment Solution
- Which Repayment Schedule is Right for You?
- Simplify Your Life with Single Billing
- Change Your Variable Rates to a Fixed Rate and Save
- Extend the Low Interest Rate Benefit Associated with Your Grace Period
When you entered college, it was your chance to strike out on your own, make your own decisions, and manage your life without Mom or Dad looking over your shoulder. If you are like hundreds of thousands of your fellow students, one of your first decisions was how to pay for this new found freedom. You could have gotten an extra job, scheduled part time classes, and spent the next ten years on the "pay as you go" plan. Not necessarily a bad idea, since you have to work for the rest of your life, anyway. Trying to enjoy the 'College Experience' as a working stiff can be a little tricky, so most students supplement their funds with financial aid. Sign on the dotted line, and you get to come back to school next year. Simple, right?
Does the word "repayment" mean anything to you?
Like hundreds of thousands of exiting college students, you will soon be obligated to repay the student loans that assisted you in funding your education. At a time when you are just getting started and your budget is slim, those monthly student loan payments can be very difficult to make. Fortunately, there is program available that can be of tremendous benefit to you as you try to manage the repayment of your student loans, it's called the Federal Consolidation Loan Program.
Student Loan Consolidation: A Repayment Solution
Under the Federal Consolidation Loan Program, you can reduce your monthly student loan payments by as much as 43% by combining your eligible loans into a new consolidation loan and extending your repayment term.
By consolidating, you have the option of extending your repayment term for up to 30 years (depending on the total amount of your educational debt), thereby lowering your monthly payment amount. You will also no longer be required to keep track of multiple payments to multiple servicers, as your new loan centralizes your educational debt with a single servicer. Send one payment to one place each month instead of multiple payments with different due dates to multiple places each month.
Student loan consolidation is a powerful financial tool that can help you get your new budget off to a good start. Consolidation may be right for you if you can benefit from:
- Monthly savings of up to 43%;
- Single billing convenience;
- A low fixed interest rate;
- Flexible repayment terms; and
- Interest rate discounts.
Flexibility is one of the key features of a consolidation loan. There are a number of repayment schedules available, including level, graduated, and income-sensitive schedules. You should be aware that extending your repayment term means that you will be paying more interest over the life of the loan. However, you can prepay your loan at any time with no penalty to reduce the overall cost of interest.
Which Repayment Schedule is Right for You?
Each repayment schedule has its own pros and cons, and you should be aware of these before you decide which one is right for you. Below is an explanation of the different repayment terms associated with most consolidation loans:
- Level Repayment Schedule: As you might suspect, this repayment term is structured so that you pay the same amount every month, from beginning to end. This is a great way to pay off your student loans over a longer period of time without accruing an unnecessary amount of extra interest. If your income is good now, and you expect it to stay that way for years to come, this is probably the repayment schedule for you.
- Graduated Repayment Schedule: No, you don't have to show a copy of your diploma to take advantage of this flexible repayment option. Graduated schedules are simply designed so that your payments start out lower, with scheduled increases generally every two years until they level off for the majority of your repayment term. If you are in a relatively low-paying position now, but expect your income to rise in the next few years, this plan will help you structure your repayment to fit your budget, sometimes saving you up to 43% in the initial months of repayment. This schedule will cost more over the years in interest, but you should be able to repay your student loans and still eat on a regular basis.
- Income-Sensitive: Let's face it, some people head out of school and go right into a killer career; others still need a little time to "find themselves." If you're not ready to jump into a well paying job right away, you probably could use some extra relief when it comes to paying back your student loans. Under an income-sensitive schedule, the payments are set based on your ability to repay the loan on a monthly basis. This is the most expensive form of repayment, as the interest will pile on significantly during the life of your loan.
Simplify Your Life with Single Billing
One look at their student loan files can send some students running for cover, as the many loans they accumulated over the years require different payments to different servicers, all at varying times of each month. In addition to being confusing, missed payments can result in extra fees and black marks on your credit. By consolidating, you are combining all of your loans into a single new loan, with one payment to one servicer. Think of the money you will save in check printing charges!
Change Your Variable Rates to a Fixed Rate and Save
Each year on July 1, your variable student loan rates are subject to adjustment. While this technically means that your rates could go down, we all know that rates are on the rise now, with no sign of stopping. This year alone, interest rates for student loans were increased by nearly 1.25% because of the July 1 adjustment.
The interest rate for your new consolidation loan is a fixed rate, helping you avoid the uncertainty of annual adjustments to your existing variable-rate loans. With increases like the one we saw this year, fixing your rate can save you thousands of dollars over the life of your loan. A consolidating lender will work with you to understand the formula for determining your fixed rate. Based on Federal regulations, your new rate is the "weighted average" of your underlying loans, rounded up to the nearest 1/8 of 1%, with a cap of 8.25%.
Many consolidating lenders offer special discounts, such as an interest rate reduction for a certain number of on-time payments. It is important to shop around for the lender whose terms are most beneficial for you, since these discounts are not standard from one lender to the next.
Extend the Low Interest Rate Benefit Associated with Your Grace Period
If you are still in your grace period, you may be thinking that you have to put off consolidating for several more months until your loan grace period(s) end. Actually, the best time for you to apply for a consolidation loan just may be during your grace period and many lenders will allow you to pre-apply for your consolidation loan. By pre-applying, the weighted average interest rate for your consolidation loan will be based on the lower interest rate that applies to your loan(s) during the grace period. By pre-applying, you not only benefit from the continuation of these low rates, you also get to enjoy all the "no payment due" benefits associated with your grace period. Participating consolidation lenders will hold your application and delay the actual processing of your consolidation loan until you approach the end of your grace period. As you prepare to leave your grace period, the lender simply submits your application for processing and schedules completion for the time that you normally would have entered repayment anyway. That way, you lock in you lower grace period interest rates and benefit from the lower payments associated with consolidation as you begin repaying your student loans.