Consolidation of Student Loans

Student loans can be consolidated to reduce payments, fix interest rates and extend the life of the loan. Certain loans can be consolidated, including Stafford Loans, Federal Perkins Loans, and PLUS Loans. Although extensions of loans through consolidation can increase the total amount paid by the end of the loan, it can offer some financial relief and simplification of payment plans to student loan customers.
Stafford Loans are offered to students at a lower interest rate than most loans. Eligible students can enjoy delaying payments until after college. Subsidized Stafford Loans are given on a financial need basis. The government pays the interest on subsidized loans during the time that the student is enrolled in school. Unsubsidized loans accrue interest while you are in school and you are responsible for the repayment of this interest. Stafford Loans, subsidized and unsubsidized, can be consolidated into one loan with a fixed interest rate. This will generally extend the life of the loan, but can offer relief from high payments. Consolidation also helps simplify your payments, so that you can make only one payment per month instead of multiple payments with varying due dates to multiple loans.
The Federal Perkins Loan is subsidized by the government like a subsidized Stafford Loan. The government pays the interest that accrues on the loan during the time that the student is enrolled in college. Keep in mind that you must be enrolled at least half-time to qualify. The Stafford Loan has a six month after graduation or withdrawal grace period in which repayment does not begin. The Federal Perkins Loan has a nine month grace period. The Federal Perkins Loan has a special provision for teachers. Teachers may be able to cancel part of the amount that they owe on their Federal Perkins Loans. Teachers can qualify for a percentage of their loan to be cancelled for each year that they teach in special low-income schools, or in areas where there are teacher shortages. The Federal Perkins Loan carries a fixed interest rate of five percent and has a ten year repayment period. This repayment period can be extended through student loan consolidation.
PLUS Loans are sometimes referred to as parent loans. They can also be obtained by graduate students and students in professional study. Unlike Stafford Loans and Federal Perkins Loans, PLUS Loans do not have a grace period. Payments may be immediately due after the loan monies are dispersed. PLUS Loans usually have higher interest rates than Stafford Loans or Federal Perkins Loans, but they are generally not as difficult to qualify for. You are not required to have a financial need to qualify for a PLUS Loan, but you will, however, need to have good credit to qualify. Repayment plans are not as flexible with PLUS Loans, so many people turn to consolidation if they are having trouble repaying the loans.
Many students end up with Stafford Loans, Federal Perkins Loans, and PLUS Loans to repay. Students can now consolidate all of these loans into one easy to manage loan. Most student loans must be repaid within about ten years. But, with consolidation, you can extend the repayment period of these student loans for up to thirty years. This can make student loan debt a lot more manageable and repayment more attainable.

Plus Loans and the FFEL Program

If you have a dependant child enrolled in college, then you may qualify for a PLUS Loan. PLUS Loans are also known as parent loans in the world of student loans and financial aid. PLUS Loans are available through the Federal Family Education Loan (FFEL) Program. They are also available through the William D. Ford Federal Direct Loan Program. As a parent of a student, your credit history will come into play when applying for a PLUS Loan.

If your child is already receiving financial aid or other student loans, then you may or may not qualify for an additional PLUS Loan during the same enrollment period. Your child has to be enrolled at least half time in an eligible school for you to receive PLUS Loan money. Applications for PLUS Loans are available through lenders or directly from the school. You may consider going through a company that matches you with the lender that’s best for you, or at least gives you many different lenders to choose from. If a school offers you one lender for a PLUS Loan, then make sure that you check around and consider all of your options. The one that they offer you may not be the best deal around.

If your credit as a parent is not that great, then you still may qualify for a PLUS Loan if you can exhibit certain extenuating circumstances. Check with the lenders for specifics that could help qualify you for the loan. Parents can borrow as much money as the student needs to attend college. If the student is already receiving some financial aid, then it is considered and subtracted from the cost of attendance. You can not borrow more than the cost of attendance with a PLUS Loan.

PLUS Loan money is sent directly to the school. Money can be put towards tuition, room and board, school fees and other school related expenses. Any extra money borrowed that is not necessary for school will be sent directly to you, the parent. You can choose to have the money deposited in a school account where it will be held for future school needs. In any case, all of the remaining money must be used for school and school expenses.

The interest rate on PLUS Loans is currently 8.02 percent. This rate changes every year on the first of July. There are also fees associated with PLUS Loans. Usually when there is a loan payment dispersed, which can be one or two times per enrollment period, the parents will pay a 4 percent fee. This money goes to the lender and/or the government to keep the cost of managing PLUS Loans down to a minimum. You don’t get the luxury of a grace period with a PLUS Loan like you do with some other types of student aid. Payments start immediately after the first disbursement is made, or within sixty days of the first disbursement. As soon as the first disbursement is made, interest starts accruing and continues to accrue for the life of the loan.

About the Author: Evelyn Saunders, a retired teacher, is the editor for student-loans.net, a provider of student loans and information on how to get private student loans as well as consolidation. For more information, please visit http://www.student-loans.net.