Consolidate Your Student Loans
How To Consolidate Your Student Loans – The Ultimate Guide
Have you been contacted to consolidate your student loans? Each year, millions of individuals receive an offer such as this, and in fact, follow through with a refinance. However, this is not a “one size fits all” solution, and not every individual is the proper candidate for refinancing.
The general consensus is that you can lower the monthly payment when you consolidate student loans simply by increasing the number of years that the loan will be repaid. While that may be true, and because at the time, you’re just beginning your professional career, it may seem like a good idea. However, you really should consider the following three options.
- Institutions that offer student loans have other options in addition to consolidation. Before you make a commitment to consolidate student loans, we highly recommend that you meet with your financial aid advisor with your university or college to discuss the matter. The advisor will more than likely recommend that you consult with your lender to find out what repayment options are available to you.
- It’s beneficial for the student loan lender to place you in the best repayment program for your individual situation. After all, if the repayment term is such that you can easily pay your loan, it stays current and everyone is happy.
- As we mentioned above, when you consolidate student loans early in your career, it appears to be the best solution. But you need to keep in mind that when the repayment period is extended, you will be paying quite a bit more in interest charges that may not all be tax deductible.[bctt tweet=”We offer some good tips on how to consolidate student loans…” username=”HBSMoneyTips”]
As of the writing of this article, the maximum amount of interest that you can deduct on your tax return is $2,500.00, so if you have a high loan balance, there may be a substantial amount that you can’t deduct.
One of the questions to ask your lender is to see if they offer a gradual repayment option. What this does is to make your monthly payments smaller as you begin to pay student loans.
You should also ask about loan deferment or forbearance. Postponing the repayment on the loan is deferment, and if your loan is subsidized, the interest meter stops, and interest is not accrued. Usually if you’re unable to find a job, or you’re enrolled in another post-secondary school, you can apply for loan deferment.
If you can’t make the monthly payments on your loan and don’t qualify for deferment, the lender will give you a forbearance which allows you to stop making the payments for a specified period of time. Bear in mind that most lenders will NOT grant you a deferment or a forbearance if your loan is delinquent. So be sure to apply before that happens.
Not all student loans are eligible for consolidation, so you need to ask your lender if yours are. Another very important question is to ask if there is a penalty for early repayment, on a loan(s) being consolidated. You don’t want that surprise being thrown at you as it could be very expensive.
College students are often placed in situations of panic or mass confusion because of the number of offers they receive to consolidate student loans. Brochures listing various repayment programs along with varying rates of interest are enough to confuse anyone.
The best advice that we can offer if you’re considering how to consolidate student loans, is for you to begin this process with your current lender. Often times they will offer a program to you that is just as good, or better than any that you received in the mail.
An old caveat applies here as well…if you receive an offer to consolidate student loans that looks too good to be true, be careful, it just may be. Read the fine print and then read it again, and ask questions, a lot of them.