How to Know When to Consolidate Your Student Loans
When you should consolidate your student loans is primarily based on your status as a student - whether you're still in school or have left your program or graduated. If you're in "repayment" mode, meaning you're all done with school and the student loan bills are starting to come, then you can consolidate now. If you're in a "grace period" (the time right after you graduate but before you have to pay your student loan bills), you can consolidate. If you're still enrolled in the program for which you borrowed, you can't consolidate.
No matter what the status is of your student loans, there is one date on the calendar that you should be aware of: July 1. On that day each year, interest rates for all but the newest federal student loans are reset. Keep an eye out for information about what the new rate will be.
As long as your application for federal consolidation is complete and submitted before the deadline, you're good to go. Note however, that in general, it takes between 30 days to 90 days to complete the loan consolidation process. Once your loan is consolidated, you're first payment will be due in 60 days.
Can I "Re-Consolidate" My Current Consolidation Loans?
It depends on a couple of factors. The general rule is that you cannot
re-consolidate most consolidation loans on their own. The one exception is for
loans that were consolidated under the federal Direct Loan Consolidation
program, which can be re-consolidated. For all other federal loans, you must
have a new loan to add to an existing consolidation loan to re-consolidate. Of
course, there are many exceptions and restrictions, so check with your lender
for more information
What are the Repayment Options for Consolidation Loans?
In an effort to give student borrowers more flexibility in how they repay
their loans, there are four types of payment plans to choose from. In all cases,
it’s a good idea to shop around and compare the different repayment plans from
lending institutions because terms vary from one lender to the next, and you
might be able to get a better deal from another lender.
The first is the standard plan, and it’s pretty straightforward: fixed monthly payments for up to 10 years.
Second is the extended plan. This plan allows you to extend the length of loan up to 30 years. However, each lender may have different repayment terms, which largely depend on the balances of your loans. For example, if your loan balance was less than $12,000, a lender may allow you up to 12 years to repay your consolidated loan. If your loan balance was more than $60,000, then your lender would probably give you up to 30 years to pay that back. An important note: other education loans that aren’t being included in your consolidation loan may count toward the “loan balance” calculation that determines the length of repayment for which you qualify.
The third option is graduated repayment. This plan is best-suited for someone who needs lower payments during the first couple of years and then will be able to handle higher payments during the remaining years. Again, different lenders offer plans that mix-and-match levels of payments, for example, interest-only payments for the first couple of years, followed by higher payments that pay both the interest and principal. However, any time you take off from paying on the principal of the loan will probably increase the loan’s total amount.
A fourth option is income sensitive / income contingent. In some situations, lenders will base your payments on your monthly income, amount you borrowed, your employment status, and other factors. Your payment will adjust annually as your work situation changes. Requirements and terms will vary with each lender. It’s relatively hard to qualify for this plan, but if your income is going to be very low, you might want to check out this option. As with the Graduated Repayment plan, this plan will probably increase the total cost of the loan (principal + all interest).
