How Consolidation Centers Assist with Student Loans

Student loan payments can get as large as car loan payments and even house mortgage payments. They are no joke and shouldn't be taken lightly. Often a student may obtain several kinds of student loans throughout an educational career, especially students who go on to graduate school and doctoral programs. Consolidation centers allow a graduated student to effectively move all public i.e. non-private loans into one type of loan. While the same can be done for private loans, the conditions are not the same.

Several consolidation centers exist including Nelnet, the College Loan Corporation and Sallie Mae. All are enabled with the ability of managing debt from Government loans such as Stafford loans. Due to their ties with Government lending these loans are protected by the same laws that govern Federally administered student loans and are therefore not easily discharged. However, these companies may offer incentives to consolidate such as the following:

-Lower interest rates
-Fixed interest rates
-Cash reimbursement for consistent loan payments
-Interest rate deduction for extended loan payments
-Reduced interest rate for automatic payment withdrawal

These incentives, if offered can save a borrower a great deal of money and financial heartache if taken advantage of. For example, a student loan of $10,000.00 at 7% interest a year equals $58.00/month in interest alone. Add to that payment to the original loan and you may be looking at close to $100.00/month. With an interest rate reduction of 2% the interest payment goes down to $41.67 assuming a non-compounded fixed annualized rate. That is to say, if the interest is calculated monthly the rate will readjust to reflect the lower amount in the loan. So for example, if the $10,000.00 loan is now $9.950.00 the next months nominal interest rate if calculated monthly on an annualized basis would be $41.46. In other words, the terms of the loan and the interest rates are important to saving you money and making the payments easier.

Student loan consolidation centers also offer different payment plans. Three such plans are the "graduated" payment plan, "standard" payment plan and "income contingent" payment plan. These plans help a graduated student make payments in relation to his or her income at the time. Loans can also be put on deferment which allows an individual to place loan payments on hold with or without continuing amortization on the loan depending on the circumstances. The payment plans are described as follows:

Graduated Payment Plan: This plan allows one to start off at one rate for a period of about 2-3 years, following which the monthly payment rises a certain amount like 8%. This plan assumes the debtor will achieve a rise in income over time and therefore accounts for a proportional rise in loan payments.

Standard Payment Plan: The standard payment plan takes the whole loan and amortizes i.e. calculates interest payments and loan payments for the life of the loans payback period. This payback period can be pre-determined but can also extend to as long as 25 years. In this instance the payments are the same over the life of the loan.

Income Contingent Payment Plan: The income contingent Payment plan is for individuals who want to better match their loan payments against their income level. For example, if one is not earning enough to make either standardized or graduated payments, this plan allows a third option making possible lower payments. It is important to note however that if a monthly payment does not equal that of the interest rate, the loan will negatively amortize i.e. increase in size despite payments. At this point all lower payments can do is slow the growth of the loan.

Deferment: In deferment a loan is put on hold in terms of payments. In school deferments are allowable for students who re-enroll in school for more than half time and out of school deferments are offered in conditions of financial hardship.

Student loan consolidation centers are generally there to help a borrower and not make life worse. While the loan conditions may not be ideal they may be better than any other available alternatives. It is important to research ones financial condition, and the different companies that offer payment plans and loan consolidation. Things one might consider looking for might include the following:

-Helpful and Courteous Loan representatives
-Credible business practices and track record
-An array of payment plans and interest rate incentives
-Good access to one's loan information, payback status and other financial information

Student loans are a serious financial responsibility and payments are fortunately tax deductible as of the date of this article. A good consolidation company can make the process of managing the debt easier and more realistic. While the debt may be scary, the consolidation plan can help make it less scary and that is why these companies are useful.

Source(s):

http://www.salliemae.com/after_graduation/manage_your_loans/consolidate_student_loans/federal/
http://www.collegeloan.com/default.aspx
http://www.nelnet.com/

Disclaimer: The information in this article may not be accurate as student loan companies may change their policy and or repayment terms. The author of this article does not assume any responsibility, liability or indemnification for any results or occurrences associated with the use of the information contained is this article. The reader may use the information at their own descretion and liability.