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5 Things You Must Know About Student Loan Debt Consolidation

[Nov 13, 2009.]


1. Do Not Pay An Up Front Fee - Free debt consolidationis available. Under no circumstances should you have to pay an up front fee. Beware of up front fee scams. A student loan debt consolidation interest rate will likely be slightly higher than your unconsolidated debts. But other than a higher rate, consolidation loans should be free.

2. The PLUS Loan Consolidation Loophole - The Higher Education Reconciliation Act of 2005 increased the interest rates on PLUS Loans to 8.5% fixed. Although the rate is fixed, it might be worth while to get a consolidation loan for all of your PLUS Loans. The cap on PLUS consolidation loans is only 8.25%. So by consolidating your PLUS student loans, you would be able to lower the interest rate by .25% and make one monthly payment instead of several. Your current PLUS lender may have already discounted your rate, so before you consolidate, check your current rate.

3. Consolidate With Any Lender - On June 15, 2006 the single holder rule was repealed as part of the Emergency Supplemental Appropriations Act of 2006. Now you can shop debt consolidation lenders to find the best deal. Remember, you are looking for free debt consolidation.

4. Your Interest Rate Will Likely Be Higher - Student loan debt consolidation loans use a weighted average of your current interest rates. Don't be misled by a lender who tells you that they can lower your interest rates. You may be able to lower your highest interest rate, but you will also likely raise your lowest interest rate. The consolidation loan's interest rate will likely be in the middle somewhere of your current highest and lowest interest rates. If you are extending your repayment term in order to lower your monthly payments, you will likely pay more interest over the life of the loan than you would have paid if you had not consolidated.

5. Choose Your Repayment Plan - If you don't specify, you will receive a standard 10 year repayment plan. There are other plans. Besides the standard repayment plan, there are also extended, graduated, income-contingent, income-sensitive, and income-based repayment plans. The extended and the graduated repayment plans allow for terms up to 30 years. The graduated plan's monthly payment starts out low and increases over time. Each of the repayment plans linked to income consider in some way how much the borrower is earning. The monthly payments are then calculated based on a formula and adjust annually.


About Author:

Renee Morgan has been a loan officer for over eighteen years. She is also a freelance writer and guest expert for radio and TV.

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