Paying for Graduate School

Government Student Loan Consolidation

As the value of higher education rises, so does the price. The only way that many students can afford higher education is through student loans. Having multiple student loans can mean high monthly payments and interest rates, but federal student loan consolidation can reduce monthly payments and lower interest rates.

Federal student loan consolidation is available for any students who have federal student loans. To qualify for federal student loan consolidation, students must meet only a few criteria. Students must have multiple federal student loans and either must be still in the post-graduate grace period or must have successfully made three monthly payments on their loans.

Though subsidized and unsubsidized loans may be consolidated, they are consolidated into two separate loans. This allows them to be monitored separately by lenders, but the payments are still combined so that students only make one larger monthly payment that goes toward both your subsidized and unsubsidized loans.

Consolidating federal student loans does not forgive the debt; however, it does allow for longer repayment terms and lower monthly payments. These repayment terms vary from 10 to 30 years depending on the amount of debt. The monthly repayment amount of consolidated federal student loans is dependent on the repayment term, amount of debt, and interest rates.

Consolidating federal student loans prolongs repayment terms to reduce monthly payments but also accumulates more interest in the long run. Therefore, make sure you take the time to consider your current personal financial situation before you decide whether to consolidate. If you are simply going through a rough patch that you know is temporary, it may be a better decision not to consolidate to avoid more long term interest.


The Effects of Defaulted Student Loans

Once a student loan goes into "default" status, the full balance of the loan becomes due immediately. Default status also means that other options for delaying payment, including student loan deferment and forbearance, can no longer be used. The consequences of these unpaid loans can cause problems beyond the loans themselves. Defaulted student loans can negatively affect credit scores, wages, tax refunds, and abilities to qualify for other loans.

Due to the large amount of most student loans, repaying loans in one lump sum is often unmanageable; however, there are other ways to repay the unpaid loans and to repair the damage done by defaulting on the loans. While the Federal Student Aid (FSA) provides guidelines to successfully repay defaulted student loans,

FSA’s guidelines are not the most practical approach. We recommend working with a company that can help you out of debt and through the repayment process. These companies often offer free services to consolidate your debt and to change your loan status to from default to “current,” which will reduce your interest rates and monthly payments and will making your debt seem more reasonable.

The best way to handle defaulted student loans is to prevent them by keeping your student loans current. If you can’t keep your loans current by paying them, then you can keep your loans current by using other methods, including consolidation, deferment, forbearance, and forgiveness.

Consolidating loans can keep your interest rates low and can give you more time to pay them off. By lowering the interest rates and expanding the terms of repayment, your monthly payment is lowered. This makes the loans more reasonable and easier to manage.

Deferment of student loan is another option; however, it is only available under specific circumstances. Deferment can occur for continued education, medical internship, or economic hardship. Deferment is also common when students choose public service. Loan payments are delayed while students are in active service.

Forbearance is delaying the payment of loans. In the short term, forbearance reduces the payments and allows students more time to acquire the necessary funds; however, in the long term, forbearance only delays the repayment process. Forbearance is an option for students in medical internships, with high loan-to-income ratio, or with other special circumstances.

Defaulted student loans can also be forgiven when students engage in certain services. For example, you could have your defaulted loan forgiven if you work for AmeriCorps or Peace Corps, if you teach in low-income areas, or if you do other types of public service.


Student Loan Information: Direct Student Loans

There is so much student loan information on the internet; it is hard to decipher what is accurate and what is not. What is important to know about student loans? Student loans are often the only way for students to fund their continued education. The Federal Direct Student Loan Program (FDSLP) has become a way for universities to offer their students direct student loans. FDSLP eliminates third-party lenders and offers government loans directly through universities.

What is the most important student loan information to remember?

Even though FDSLP conveniently eliminates the “middle-man,” FDSLP does require that the loans be repaid. These loans can be repaid in various ways to make the repayment process more manageable. Repayment options include standard, extended, graduated, and income-contingent repayments.

Standard repayments require students to pay a fixed monthly amount. The minimum amount for standard repayments on direct student loans is $50. The loans usually must be paid off in 10 years; however, both the monthly payment and payment term are determined by the unpaid balance of the loan.

Extended repayments also require a monthly payment of at least $50. Unlike standard repayments, extended repayments have payment terms of 12–30 years. Extended repayments are more appropriate for students who have more debt. The longer terms allow for lower monthly payments, but consequently, students pay more interest.

Graduated repayments accommodate the low initial incomes of many recent graduates. Graduated repayments allow for minimum payments to start low and to increase slowly over time. The payment term for graduated repayments is similar to that of extended repayments, often between 12–30 years. Like extended repayments, graduated loans offer lower monthly payments but charge more interest in the long run.

Income-contingent repayments are designed to assist students who demonstrate financial needs. Payment amounts for income-contingent repayments fluctuate in coordination with students’ incomes. If the loans are not repaid over the payment term of 25 years, the remaining debt is absolved by the government.


Beyond Stafford Loans

What loans for graduate students are out there?

Paying for their children’s education is often a dream for many parents; however, this is not always feasible because of increasing tuition rates. The PLUS Loans program offers parents an affordable opportunity to pay for their children’s higher education.

This program is a government-assisted program that provides parents and students with another way to pay for continued education. Stafford loans are available for students, but PLUS loans are only granted to parents who are held financially responsible for the debt. Many parents who don’t currently have a large amount of savings in the bank for college tuition are still financially able to make monthly payments for a college loan. This is a great option, because students are often swamped with loan bills they acquired from Stafford loans immediately after they graduate, and likely before they are able to find their first well-paying position at a company.

Besides the recipients of the loans, there are many differences between PLUS Loans and Stafford loans. PLUS Loans are only granted to parents who have good credit scores (if parents have bad credit scores, students might try for Stafford loans), and are limited to the amount of tuition after all other financial aid has been applied. On the other hand, these loans do not have the six-month grace period granted to students who receive Stafford loans, the minimum payment is $50 a month and must begin sixty days after the complete loan is applied, and any excess money from Stafford loans goes directly to students, but excess money from PLUS Loans goes directly to parents.


Refinance Student Loans

Some students choose to refinance student loans to reduce their student debt and monthly loan payments. Students can refinance their loans through various ways, such as consolidation.

Students should consider several things before refinancing student loans. For example, federal and private loans should be refinanced separately. Federal loans have lower interest rates than do private loans because government lenders know that students’ incomes will increase as they continue their educations. Consolidating federal loans with private loans when refinancing will raise interest rates more so than if the loans were refinanced separately.

Students should have good credit scores before they refinance student loans. Bad credit scores will affect interest rates for refinanced loans. Before refinancing, students should review their credit reports and try to fix any problems. After they have fixed any problems with their credit scores, students should request quotes from different lenders to determine which lender would offer the best interest rates for the refinanced loans. Interest rates tend to change around July 1 every year, and though interest rates are currently low, changes in the economy can cause sudden changes in interest rates.

Different lenders have different qualifications to refinance student loans. Most lenders do not allow the refinancing of loans that are currently paying for education. Some lenders require minimum balances of varying amounts to qualify for refinancing. Students should research these qualifications before refinancing.

Refinancing can either lower interest rates and monthly payments on student loans or redistribute the payments over longer periods. Lowering interest rates prevents long-term payment increases, and lowering monthly payments decreases short-term payments. Redistributing the payments over longer periods of time makes each payment more manageable but increases the overall balance of the loans because of interest.


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