Student Loan Consolidation Hot Topics

Federal loan consolidation does not cost a dime. There are no upfront fees involved.

Consolidating private loans may cost you anywhere from 1-5% of your total loan volume. Generally speaking the lender will roll that amount into your outstanding principle balance.

Neither one has an out of pocket expense at the time of consolidating, but your private loan volume with increase. You just need to decide if the loan term and interest rate provided warrant the 1-5% fee you will be charged.

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Consolidation is used as a debt management tool. Millions of students utilize the consolidation process to make their monthly payments more affordable. How it generally works is that your loan terms get extended whereby reducing your monthly obligation. Prepayment penalties do not exist on the federal side and in most cases there are no prepayment fees on the private side as well. It is definitely an option worth considering. In addition, if you have a federal Perkins loans you may want to volunteer in the Peace Corps or VISTA.

Obama signed a 5.7 Billion dollar measure to boost volunteerism on Tuesday, April 21. The new law authorizes the increase of Americorps to 250,000 from 75,000 by the year 2017. If you have Perkins loans, Up to 70 percent of your loans may be forgiven for your volunteer service. With more positions becoming available it may be something worth exploring.

I became a father for the first time earlier this year which was the best moment of my life. Every decision I now make is with Barrett (featured to the right) in mind, which includes going back to school. I’m currently enrolled in classes with the aim of bettering myself, providing a better life for my family, and becoming a more well rounded person. I want to add to our countries GDP numbers. The only problem is my loan volume from school is now skyrocketing upward like a five star Sarah Palin wardrobe.

Did you know the average college graduate carries more than $20,000 in debt? That is a 6% increase year over year. When you combine that with starting salaries for recent grads, which only rose by 3% over that same time period according to the Project on Student Debt, it’s even harder for students to repay those sizeable loans. Of course many students have been unable to land jobs at all and have been forced to place their loans into forbearance where more interest will accrue inflating that total payback number.

It’s really an interesting dichotomy. Go to school and be in debt thousands vs. entering the work force right away with no debt at all. They both have pros and cons but the long term benefits and typical salaries for those with an education will far surpass those without – even when debiting the loan cost from the bottom-line.

To help make those monthly payments more affordable you may want to consider consolidation. Consolidation extends out your loan term and helps minimize your monthly student loan expense. There are also no prepayment penalties so if you have extra money to put toward your loan you can do so at any time.

I know consolidation is going to be in my near future when I graduate. That way I’ll be able to afford my loan payment each month and still buy that new bike for Barrett!

“I can’t pay my bills, help!”  I hear that unwanted phrase at least 10 times a day, and many others who don’t actually say it are thinking it.  I can hear it in their voice.

For those in trouble, and I know there are many as the unemployment rate is holding steady at 6.1%, you have an option for your private loans.  You can defer your loans after you consolidate for up to 12 months with an economic hardship deferment?

To qualify for an economic hardship deferment your student loan payment must exceed 20% of your gross monthly income, and your gross monthly income can not be more than 3X the Federal Poverty level in your state.

Also, as a back-up plan, anyone can qualify for a 12 months forbearance on their private loan consolidation just by requesting it.  You don’t have to “qualify” financially for this.

If you have $10,000 or greater in private student loans and wish to consolidate (click here) now.

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I have spoke to many students who are under the belief that consolidation is a means by which to lower your interest rate, however that is not the case. The real benefit to consolidating is extending your loan terms and minimizing your monthly payment. Granted, your rate may decrease as some lenders use the LIBOR index while others base your interest rate off the prime, but that is no guarantee.

So is consolidation right for you? Each person’s financial situation is different so it’s not a black or white answer. What I can tell you is this, if you are struggling with your monthly payment than consolidation will probably serve you well.

We’ve actually seen a spike in consolidation applications over the past month which is reflection on the current state of the economy. Many don’t have jobs or are only working part-time right now and need to lower their monthly payment. The job market is the worst it’s been in years. According to the Labor Department the unemployment rate just jumped to 6.1% the highest in 5 years. Over 600,000 jobs have been lost so far in 2008! I guess we should just be thankful we are in a recession and not a depression.

If you would like to find out what your interest rate and payment terms would be without obligation (click here).

FICO comes from the Fair Isaac Company, which came up with the process of condensing all of your credit information into one three-digit number.

Three major credit bureaus hold your FICO score; Equifax, TransUnion, and Experian, and each calculate it a little different than the others. Should you wish to dispute a mark on your credit report from one of the three bureaus you can write to them like I have done previously (see below for address information).

Equifax Information Services
P O BOX 740256
Atlanta, GA 30374
800-997-2493

TransUnion
Customer Disclosure Center
Trans Union Consumer Relations
PO Box 2000
Chester, PA 19022-2000
800-888-4213

Experian
NCAC
PO Box 9556
Allen TX 75013
888-397-3742

Your FICO score is used in determining your interest rate, and is even used as a barometer for getting a job. FICO scores range between 300 and 850. Ratings are as follows:

Excellent: Over 750
Very Good: 720 or more
Acceptable: 660 to 720
Uncertain: 620 to 660
Risky: less than 620

The formula used to calculate your FICO score includes information based on several factors:

~ 35% on your payment history
~ 30% on the amount you currently owe lenders
~ 15% on the length of your credit history
~ 10% on the number of new credit accounts you’ve opened or applied for (fewer is better)
~ 10% on the mix of credit accounts you have (mortgages, credit cards, installment loans, etc.)

Now that you know what your FICO score is and how it is calculated you’ll want to work on getting it as high as possible. I’ll be offering some tips in the coming weeks!

For more information about credit or to apply for a credit card (click here).

More interesting findings this week – Student loan borrowers that take advantage of borrower benefit discounts should pay close attention to their repayment schedule to avoid loosing their discounts. Because so many lenders are struggling to stay in business right now, many of them are shortening or removing the late payment grace period. For example, some lenders offer discounts for on-time payments, and previously allowed borrowers to be up to 14 days late before removing the discount. This window is either shrinking or getting completely closed – being only 1 day late in some cases could cause discounts to be removed.

So make sure you stay on top of monthly payments and give yourself a few extra days, or even a week to get a payment delivered. If you have automatic checking account withdrawal setup, be sure to spot check your payments periodically. If you plan on setting up auto payment, note that it usually takes 1-3 billing cycles to get setup, so make your normal payments via check or debit card (over the phone or online) until you can confirm that the auto pay is setup. Also, if you switch banks or checking accounts, make sure and remember to switch your student loan payment(s) as well.

A little extra care and attention could help you save thousands.

Yes – it’s time. You’ve been thinking about this moment on and off since the beginning of summer. In between sipping cheap beer and having a well deserved good time, the thought of paying back your enormous student loan debt is now slowly solidifying into a general state of panic. Soon enough, the bills will start rolling into your mailbox. In between the magazine subscription requests and credit card offers, you’ll find those thick white envelopes packed full with your repayment coupons.

According to the Project on Student Debt, a nonprofit geared to help student borrowers, nearly 75% of borrowers graduating from a 4 year degree program have, on average, $19,000 in student loan debt. This amount does not take into consideration any graduate program debt.

One of the biggest hurdles for recent graduates is adapting to post college life – financially and socially. It’s a difficult time (albeit fun time) compounded by the need to find a good job, the possibility of moving to a new city, the cost of moving, general living expenses that were previously covered while in school, and of course student loan payments.

While many borrowers will be able to make due during this transitional period, either by consolidating or deferring their loans – some borrowers will not be able to pay, and eventually end up delinquent or even in default. Going into default can hurt credit even more then filing for bankruptcy for credit card debt. At a time when establishing good credit and building a sound financial foundation is critical, a mark like that on a credit report can have long term negative effects.

So…what to do now? The debt isn’t going anywhere, so you’ll you just have to get used to it and learn how to manage it.  That’s really the point I am trying to get across – manage your debt, don’t ignore it. There’s a reason why you get 30 consolidation offers in your mailbox each week – consolidation is a helpful tool that can really lower your monthly student loan payments. It’s not THE answer, but simply one of several tools that you can use in order to help free up some extra cash. The same holds true for deferment. While it doesn’t stop interest accrual on some of your loans, it does provide relief if you can’t make your monthly payments.

Stay tuned for more helpful information about dealing with post college life.

Now that summer is officially behind us and we are headed into the fall, I thought I would pull together a few cash saving tips to help “bulk up” your savings for the long winter ahead. Over the next few weeks, I will periodically post a variety of money savings tips and ideas that anyone can do to help line their pockets with some extra green.

Most financial advisors will say you need at least 6 months worth of living expenses in a savings account in case the unexpected should happen. I agree with this whole heartedly, but being a realist, fully understand that this is not an easy task. Here are a few starter tips to help achieve that 6 month savings umbrella your parents have been nagging you about since you graduated.

• Sell what you don’t need. You have plenty of CD’s, DVD’s, and old play station games laying around that you haven’t touched in years. Extra MP3 player? Digital camera? Left over CRT monitor? Sell it all – someone will buy it. You started that ebay account for a reason – get to it. Also, instead of buying brand new furniture, buy used. All you need is a can of paint and you can turn that faded oak coffee table into a fresh nouveau masterpiece.
• Keep a spending journal. Write down your daily expenses – big or small.  At the end of the month categorize them -  You’ll be shocked at what you spend the majority of your cash on.
• Build a budget and stick with it. Probably one of the biggest ways to save money is the monthly budget – do it right and you can start saving for that trip to Costa Rica.
• Consolidate your student loans. You knew it was coming… Consolidation is the easiest way to cut your monthly expenses nearly in half.

Stay tuned for more tips in the weeks to come.

The other day I spoke to a lovely woman who has been teaching for a few years in a low income area. While teaching, she went back to school to get her Masters degree to help raise her salary and keep her credentials. After a few years of teaching in a low income area she made a salary of $32,000. Her student loans equaled $50,000.

My suggestion to help manage her student loan debt was to consolidate her federal student loans. I explained to her that if she did not consolidate her monthly payment for her student loans would be about $570 a month for 10 years. It’s obvious that a monthly payment this high is just not possible to manage on a teacher’s salary. By consolidating it would stretch her repayment term to 25 years however there are no early repayment penalties. Her monthly payment once consolidated could be as low $276 a month.

With all of her big plans and obligations like rent, utilities, car payments, and beginning savings, she won’t have to worry about how to make her loan payments once she consolidates. No she is free to pursue her dreams without a dark cloud hanging over her head.

The Student Loan Network: Stafford Federal Student Loans, Parent PLUS Loans, Student Loan Consolidation, Private Student Loans, Education Loans/College Loans

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