18 Nov Should College Grads Consolidate Student Loans?

Late fall can be a financially stressing time for young adults. High school seniors are racing to file the FAFSA, or waiting for financial aid decisions from their prospective colleges. This year’s college graduates, on the other hand, are nervously expecting their first payment due notices from all the federal and private student loans they took out during the college years. While having the loans available might have been helpful in paying for a college education, it can be difficult to deal with the sudden onslaught of financial responsibility.

Although it might feel overwhelming, it is possible to take a rational approach to student loan repayment so that you do not put undue stress on yourself or overtax your budget. Instead of ignoring your student loans, it is best to address the issue head-on so you can make informed decisions. Here are some things you will want to keep in mind as you work through the student loan process:

•  How much do you owe? With federal student loans, the loan servicer will usually send you a notice regarding your payment due status about a month before the first payment is due. If you have not received any notices, you can go online to the National Student Loan Data System to find a list of your federal student loans and servicers. With any private student loans that you took out from banks or other resources, you might have to contact each of them directly to learn about your loan balance.

•  How much do you have to pay? Try to calculate what your total monthly payment will be, and then compare it against the amount you will be earning. If you have not found a job yet that will cover all your payments, you need to look at alternative payment plans. With federal student loans, you are automatically placed into the standard ten-year repayment plan, but they do offer many other longer-term or income-based repayment plans. Each private student loan issuer may have different payment plans available as well.

•  Do you have options? Some employers might be willing to provide financial assistance for your student loans. Ask about this possibility during any job interview negotiations. Certain occupations might be eligible for loan forgiveness after a specified period of time, or you might be able to qualify for loan deferral.

Is Student Loan Consolidation Right for You?

If you find that it is too difficult to keep track of all your payments, it might make sense to consolidate your student loans. This means that all your federal student loans can be brought under one Direct Consolidation Loan. Consolidation simplifies repayment by giving you a single loan with just one monthly bill. It will usually result in a lower monthly payment, because you will have a longer period of time in which to repay your loan. Here are some additional points to keep in mind if you are considering consolidating your student loans:

• Private student loans are not included in the consolidation, so you will still have to keep on top of payments for them, or look for alternative consolidation options.

• You will usually increase your long-term costs because the loan term is longer.

• It might affect your eligibility for loan forgiveness programs.

• Consolidation can switch variable rate loans to fixed interest rates, if you are concerned that interest rates will increase.

There is no application fee to consolidate federal education loans into a Direct Consolidation Loan. You may, however, be contacted by private companies which offer to help you apply for a fee. These companies have no affiliation with the U.S. Department of Education. There is no need to pay anyone for assistance in getting a Direct Consolidation Loan.

Any outstanding interest on loans you consolidate becomes part of the original principal balance on your consolidation loan, which means that interest may accrue on a higher principal balance than might have been the case if you had not consolidated. You do not have to include all of your loans into the Direct Consolidation Loan, if consolidation would cause you to lose some of your current benefits.