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Applying for Student Loans Consolidation What You Should Know

Student loans consolidation is type of loan which allows borrower to replace several student loans like Perkins Loans, PLUS Loans or Stafford Loans or some private loans with just one. Under this plan, students can borrow enough money in one loan to repay other student loans. In case of federal student loans, the Federal Direct Student Loan Program lets you to consolidate most federal loans. For the private student loans, you can apply for a loan and use it to repay several private loans, so as to consolidate the sum and combine multiple repayments into one.

Benefits and Drawbacks of Student Loan Consolidation

There are some advantages of getting student consolidation loan, such as follows:

  • Student Debt Consolidation loan may have a lower interest rate than the rates on credit cards, so the loan should reduce student’s interest charges and help him/her eliminate credit card debt, finally.
  • You may have the opportunity to repay your student loans over extended period of time, which is advantageous because decreases your monthly payments.
  • If you take a private student loan, compared to federal loans, it is possible to negotiate more favorable interest rates with bank or other lender.
  • By joining your federal student loans with a for example, bank or other lender, you owe money to the bank instead to the government, which can be beneficial since if you fail to repay your federal loan, government can take hold on tax refunds; the bank cannot do this.
  • In case you have a negative credit rating report due to your previous student loans, a consolidation loan can let you repair your bad credit history.

On the other hand, there are some downsides of getting student loans consolidation as well.

  • Loan repayment extension, often from ten to thirty years means that at the end you will pay back the much higher total amount of the loan than the particular loans were themselves.
  • You may be eligible for interest release on condition that your student loan is guaranteed by the U.S. government. After student loans consolidation the bank will not give you interest relief.
  • In case you have bad credit or job history the interest rate charged on your student loan by the bank may be higher than interest charged under the federal student loans.
  • Consolidation loans are not available to all students; you must meet certain eligibility criteria to qualify for the student loans consolidation.

Eligibility Requirements

To qualify for the private Student Loans Consolidation Plan, you must meet some conditions:

  • You must be working or have some other source of monthly income allowing you to pay off the loan. Bank will estimate your ability to manage your debt based on your income.
  • The bank will also require the copy of your monthly budget statement to decide if you can handle your loan repayments.
  • To satisfy requisites set up by the bank or other lending institution you are dealing with, you may need a co-signor or collateral (such as a house or a car).

How to Apply for the Student Consolidation Loan and Repayment Options

The application process is very simple. You just need to fill the online application (also available in paper form) and Promissory Note and submit it to apply for a Direct Student Consolidation Loan. The application also includes your Borrower’s Rights and Responsibilities. In addition, you will have to complete Repayment Plan form in order to select your repayment plan. You can choose from several repayment option and some of them are: Income-Based Repayment which depends on your income, which means that the repayment amount is going to rise as your income does; Income-contingent and Income-sensitive plans for individuals with fluctuated income.

For self-employed individuals who have their income fluctuated, income-contingent or income-sensitive repayment plan can be most advantageous solution. According to this plans, as the borrower’s income rises and falls, the amount of their loan also does. In fact, income-contingent and income-sensitive plans are very similar to previous IBR and can be considered as it variations.

Before You Apply

There are some important issues to take into account when you are thinking of taking the student loans consolidation plan. Firstly, always do a little research on the loan characteristics, available repayment options, interest rates and other term and conditions. Do not sign any contract before you are sure that you completely understand all the matter you are getting involved with. Read as much articles about student loans and available borrowing options to figure it out which one is the most appropriate for you. To determine if you are eligible for a Student Loan Consolidation plan, contact department of Education, your bank or lending company to obtain all the necessary information.

In the long run, a consolidation loan typically pays more interest over time due to the extended loan term, so be aware of this before you apply for your student loans consolidation.

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Federal Perkins Loans for Undergraduate and Graduate Students

Federal Perkins Loans are a type of federal financial aid offered by the U.S. department of Education, intended to help students in financial need enrolled in one of 1,700 accredited U.S. postsecondary educational institutions to pay for their college or university expenses. The lender is college or university, rather than financial institution or Federal government. Government provides funds to each participating postsecondary institution and the institution then distributes funds to students in high financial need.

Under Federal Perkins Loan plan, undergraduate students can borrow up to $4,000 per year with a full amount of $20,000 borrowed during student’s undergraduate years at college. Graduate students or students in professional studies, may borrow up to $6,000 annually with a total sum of $40,000 of student loan. The definite amount you will receive is based on your financial need and amount of funds your college or university has available for providing students with this type of aid.

Eligibility Requirements

To be eligible for Federal Perkins Student Loan student must meet certain criteria:  he or she must be enrolled at least on half-time basis in postsecondary educational institution that participates in Federal Family Education Loan Program. Furthermore, she/he must demonstrate high financial need. Additionally, to be eligible for Perkins Student Loans student loan candidate must be a U.S. citizen or national, a U.S. permanent resident or eligible non-resident.

Perkins Student Loan Benefits and Downsides

In the contrary to other student loan options, under the Perkins Loan program students have advantage of nine months grace period, which means that your repayment of the loan will begin nine months after you finish college or university or fall under half-time college status. Further benefits of this plan are ten years repayment period and no penalty charged  if you choose to pay off the loan in shorter period.

Perkins Loans borrowers qualify for Federal Loan Cancellation or loan forgiveness program under condition that they work in authorized “low-income” schools or as teachers in designated high demand teaching areas like science, math and bilingual education. Peace Corps Volunteers also qualify for the loan cancellation.

On the other side, eligibility requirements are stricter than under, for example, some private loan plans and you will have to pay the higher monthly amounts because of the relatively short repayment period.

Perkins Loan Interest Rates

Perkins Loans are issued with a fixed interest rate of 5% during the ten-year repayment period. This loan plan has nine month grace period which allows you to find a job after graduating in order to repay your loan easily. You will also have to repay your Perkins loan in case you fall below half-time status at school or withdraw from the college or university.

How to Apply

In order to apply for this type of financial aid, you must first file a Free Application for Federal Student Aid (FAFSA), which can be completed online, at http://www.fafsa.ed.gov. You also must complete a Federal Perkins Loan Master Promissory Note (MPN) in order to receive this student loan. The MPN classifies the all the conditions connected to terms of borrowing and repayment of the loan.

You are also required to complete Perkins Loan Entrance Counseling before loan funds are paid. The reason of this counseling is to ensure you completely understand your rights and obligations connected to a student loan borrowing. Additionally, you must complete exit counseling after you graduate, withdraw or enroll in less than 6 units.

You are going to receive the loan funds from your school divided into two installments. There are two disbursement options: money can be placed in your student account for you or you can receive a check. The loan is usually divided into two payments, unless the loan is for a very small amount. As a Perkins Loan borrower, you don’t have to pay origination or insurance fees.

Federal Perkins Student Loan is one of the available financial aids for students today. Before applying for the student loan you should consider all the other existing borrowing options as well.

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