There are millions of student borrowers struggling to repay student loans. Student loans are rarely discharged in bankruptcy, and defaulting on your payments will only make your financial burden even heavier. Luckily, there are many options for struggling borrowers, including student loan consolidation. A student loan lawyer may provide you with answers to any serious concerns you may have regarding your student debt.
Student loan consolidation involves securing a consolidation loan. This is one loan that works to bundle multiple smaller loans and allows you to make one monthly payment at one interest rate. There are both private and federal consolidation options.
Federal Student Loan Consolidation
Students repaying federal student loans can take advantage of the numerous benefits of a federal consolidation loan. Borrowers are eligible to apply for a federal consolidation loan anytime, even those who have already defaulted on their payments. Applying is always free, and the standards for approval are lower than private consolidation or refinancing options.
Your consolidation loan will have a new interest rate which will be an average of all the interest rates of your smaller bundled federal loans. The Department of Education caps consolidation loan interest rates at 8.25%. You’ll also have the opportunity to switch from a variable to a fixed interest rate, giving you more predictable payments throughout the life of your loan. Consolidation loans allow you to restructure your repayment schedule and can give you up to thirty years to repay. This can lower your monthly payments and ease the burden of your loan obligation, although a longer repayment period means you’ll be paying more money overall.
Private Student Loan Consolidation
Private consolidation loans are functionally the same as private refinancing. A private financial institution buys out your multiple smaller loans and issues you a new loan. Private lenders offer low and competitive interest rates but generally require a significant level of creditworthiness. Many struggling borrowers don’t have the credit score or income to meet the requirements of a private lender. A private consolidation loan may have a significantly smaller interest rate and a longer repayment period. This would allow you to decrease your monthly payment as well as your overall repayment obligation and could save you thousands of dollars over the life of your loan. Be advised, however, that in addition to being difficult to secure for some borrowers, securing a private consolidation loans means you are no longer eligible for any federal benefits (like loan forgiveness and certain grace periods) tied to your original federal loans. The terms, benefits, and obligations of your new loan will be determined by your new private lender.
If you’re having trouble keeping up with multiple loans, payment schedules, and interest rates, loan consolidation may be right for you. Contact a student loan attorney from Luftman, Heck and Associates at (216) 586-6600 to find out more about your options, and remember, defaulting should never be an option.