your in-school interest rate, which is .06% lower than the repayment rate. This year the in-school rate for Stafford Loans is 3.46%, but once you take out a consolidated loan, you must start making payments immediately. So it may be smart to have your consolidation take place at the end of your grace period or by June 30, whichever comes first.
In addition, most lenders also offer extended payment, income-sensitive, and graduated payment plans. If you opt for extended payment, you can lower your monthly balance by lengthening your payback time up to 30 years. Income-sensitive plans base your payments on gross monthly income and you must reapply each year. Under a graduated income plan, the amount you pay each month steadily increases on the assumption that your salary will rise after a few years in the job market.
Sandberg says graduated and income-sensitive plans can be a good fit for students who aren’t sure what salary they’ll be making after graduation. If you still can’t afford student loan payments after your six-month grace period, you can apply for additional deferment or forbearance. In some cases the government will cover your interest while the loan is in deferment, but not forbearance, which is granted at the discretion of your lender. Whatever you do, avoid defaulting on your loans, which happens if you make no payments over a 270-day period. Defaulting can ruin your credit rating and allow your wages to be garnished.
“Lenders are very loose as long as you’re making payments,” says Sandberg. “So be proactive, talk to your lender, and see what you can come up with [together].
Steps to ConsolidatingStudent Loan Debt
There are many ways to consolidate or refinance your college student loan debt. Sterling Laylock, an Atlanta-based financial advisor, says that consolidating will lower your monthly payments, “but if you stretch the payback period, you may actually pay more over the long run.” Of course, the amount you pay back over time will depend on the interest rate you receive on the consolidated loan.
To start the process, make sure the loans are eligible for consolidation. Federal Perkins Loans, Guaranteed Student Loans, Federal Stafford Loans, Federal Supplemental Loans for Students, and National Direct Student Loans are among the many types of loans that apply. Private loans are not eligible for consolidation under the federal government’s new lowered interest rates.
Next, you’ll need to find a consolidator to discuss your loan situation. Your school may have a list of approved lenders, but the federal government, banks, credit unions, and consumer finance companies all have loan consolidation programs. If all of your loans are with one lender, you must use that lender to consolidate. If you have more than one lender, you can consolidate with any one of them. It is important to choose a consolidator that you trust will give you the most favorable rate and terms of repayment.
Once you’ve agreed to your new consolidation terms, make your payments religiously!