Consolidation Loans For Student Loan Debt Repayment Assistance And Lower Monthly Payments

Students who have outstanding college loan debt obligations from multiple sources have found that consolidating these loans can provide more affordability in terms of the costs associated with monthly mortgage payments. These repayment assistance options through consolidation plans are available, typically, through either a private student loan consolidation plan or a federal consolidation loan, both of which may offer the lower costs a student needs to avoid missing payments or defaulting on their debt.

Private student loans are unable to be consolidated with federal student loans under a federal student loan consolidation plan, but students who may have a mixture of these debts may also have options through a private student debt consolidation loan. Many graduates look to federal student loan consolidation options because they can offer lower interest rates, but if a student is in a position where they are simply unable to meet multiple student loan debt repayments, these consolidation plans have allowed for students to erase these multiple obligations and simply group all of their student loan debt within one personal loan commitment.

Obviously, students who only have to meet one payment on their student loan debts may find this opportunity is more affordable, but even students who have consolidated their loans have been able to participate in a program that allows for even lower costs to be met on their repayment obligation. As an example, students who consolidate their loans under a federal student loan consolidation plan may also qualify for programs that will require them to only pay a small percentage of their monthly income towards repaying the debt.

There have been many concerns over the past months as rates of default on student loans are reportedly rising due to the fact that some students are either unable to repay their student loan debts due to factors like unemployment or underemployment, or some may simply be unwilling to honor this debt because of the high costs may be associated with their personal student loan debt situation. Yet, private student loan consolidation plans or consolidation loans from Direct Loans, the federal student loan servicer, have been able to make the burden of repaying these college loans less severe so that students will not do damage to their credit score by missing payments or simply giving up on repaying these loans.

While student loan consolidation plans have helped some, financial advisers counsel students to weigh all of their options and be sure that a repayment plan cannot be formulated to help them erase their debts separately, as consolidation loans have usually been associated with higher overall costs. While some of these consolidation plans may offer a low-interest rate, it could take longer to repay a debt consolidation loan and, as a result, students may meet higher costs if only minimum monthly payments are made. This has been of little concern to some, as simply avoiding missed payments is their main goal, but for students who may be in a decent financial position, weighing all of one's student loan debt repayment options will be necessary to find the most affordable and cost efficient repayment option.

If you’re battling student loan debt, there is help available

As a financial counselor specializing in student loan debt since 2008, April Sanderson of Lutheran Social Service said that as the economy has worsened, the number of people she's helped with student loan problems has increased.

But it's not just the economy that's caused that rise, Sanderson said; it's also the increase in tuition and college expenses.

"Students are having to take out more loans, usually having to max out their federal loans and having to take out private loans in addition to using credit cards," she said. "Once that all comes due, they're often not in a position to afford the payments."

Sanderson said there is help for people with high student loan debt, depending on the type of loan you have. If it's a private loan, then borrowers are at the mercy of the lender.

"There's no regulation; they don't have set standards," she said. "There's no guarantee that they can or will help."

But federal or state loans often can be deferred with proof of financial hardship, Sanderson said, while some programs offer forgiveness if the borrower works in community service.

If borrowers are considering consolidation, Sanderson warns not to combine private with federal and state loans.

"If you do that, they all become private," she said.

She also recommends reading the fine print before you sign any loan consolidation papers to make sure you understand the interest rates.

But above all, she said, don't ignore your loans, because they won't go away.

"Always talk to your lender and see what options you have," she said. "Even if it's a private lender, there may be something they're willing to do."

Paying right debt will fix credit faster

Dear Debt Adviser,
Due to some horrible credit card habits in college, I racked up $26,000 in credit card debts. I realized the error of my ways several years ago, and managed to whittle it down to $9,000 currently. However, one account went into collections, then disappeared for many months, and was bought and sold by several different law firm-fronted collection companies. Finally, one that was in my state filed a suit. I entered into a consent to judgment, agreeing to pay a monthly amount I could handle. It then showed up on my credit report as a public record. I recently came into $5,000 (legally), and want to know if I should pay off the collection agency with the judgment, or pay off two, smaller-balanced credit card accounts that still exist?
-- Greg

Dear Greg,
Shaving $17,000 of high-interest debt is more than just whittling, although at times I'll bet it seemed like you were attacking an oak tree with a penknife. With around $4,000 of debt left after your next big pay-down, I'm less concerned about the relative cost of your remaining collection account versus your other credit card debt than I am with rebuilding your credit to get you back into the prime credit pool.

As a young and gainfully employed person, you will likely need access to credit sooner rather than later for life's good stuff like vehicles, a home, an engagement ring, etc. My objective is to get your credit to be in the best shape possible as quickly as possible so you can enjoy all that life has to offer. And to do that, chances are you'll be applying for a loan, a new job or new credit at some point.

With this in mind, I recommend that you pay off your judgment. Although paying it off will in no way eliminate the public record from your credit report, a paid judgment is much better in the eyes of anyone reviewing your credit report, whether it be for a loan, job, promotion or insurance, than an unpaid judgment. Additionally, once the judgment is paid in full, it will begin to age and count for less in your credit score as you put some time between it and your last payment. Then, by adding positive information to your credit report from your remaining credit cards by making on-time payments, your credit should begin to show real improvement.

My guess is that within two years, the judgment should have very little effect on what you will be charged for credit. During those two years, just be sure you make all other creditor payments on time and as agreed. Current positive information will outweigh older negative information.

There is another thing I recommend you do to ensure that this doesn't happen again. That is to take at least half -- if not more -- of the remaining money from your windfall and stash it away as part of your emergency fund. Without adequate savings, you will constantly be in jeopardy from life's setbacks and less able to take advantage of its opportunities. What you do with the residual of your $5,000 is up to you. My advice is just to make sure it's memorable as this sort of good news doesn't come around every day.

Keep making payments on the two smaller credit card accounts and before you know it, you will have paid your balances and your dues from a hard lesson in what happens when using credit cards to extend your income.

Read more: Focus paying debts that most affect credit http://www.bankrate.com/finance/debt/paying-right-debt-will-fix-credit-faster.aspx#ixzz1DLeLyM13