Loan Consolidation 101

So, you've graduated and are now holding the carbon copies of the promissory notes you signed every year before school started, obligating you to pay back a large sum of money upon graduation. Your student loans are probably the lowest rated and best termed loans you'll ever receive, but they're also large and you probably have a handful of them. You likely have more than one loan, each of them set at a different interest rate and with different terms. Student loan consolidation should be one of the first things you consider upon graduation when it comes to your finances. Consider if you had medical or chiropractic debt; student loan consolidation would be an absolute must, right away. Before you can take that almighty first step in putting your finances together after graduation though, you should know exactly what you're dealing with.

The Grace Period

Your grace period is six months and during those six months you probably have a lot of things to worry about. You'll be looking for a job, a place to live, and much better furniture than that ratty old futon you used to sleep on. For that reason, you get the six month grace period to gather and organize your finances. It's a vital stage, not only because you're confused about where you're going and how you'll get there, but you need a bit of time to get used to the idea of handling your finances. It's time to figure out what exactly you'll be doing to pay back your loans and whether or not you will consolidate.

Research Interest Rates

The interest rates change ever year. For federal student loans, these rates are adjusted on July 1st with the Treasury bill and can change substantially in a single year. Because this is for many people only two months after graduation (and for some only three weeks), it's important to research the interest rates early. You'll want to know what your loan rates are right now and what they will be when July rolls around. If the interest rates are expected to go down or stay the same, you should wait on consolidation as you'll likely save more money by doing so. However, if they are about to rise, you should make sure to apply for consolidation directly after graduation to take advantage of the current rates and not end up paying more than you need. For those working with private institutions like ACS or Great Lakes, student loan consolidation rates are based on where they set them. Do your research regardless though, as it can change.

Finding a Consolidation Service

For those that have only federal student loans, consolidation is easy. It's only a matter of filling out the direct loan consolidation forms, something you can do online from your loan repayment website. The loans are backed by the same service you currently make payments to and so nothing changes except for how many checks you write. The best part about the federal loan consolidation program is that you don't need to worry about unsavory credit checks, reference wrangling and the litany of forms you'd normally associate with loan paperwork. Instead, it's a short process that involves knowing a few numbers and school information. If you've only taken out Stafford Federal Loans, it's not even that much work.

However, if you find that you also have a few private loans, you'll need to do your research. Not every student loan consolidation service will repay every kind of loan and many will offer different terms or interest rates. While federal loans are based on the Treasury bill, certain financial institutes offer higher interest rates or adjusted lower rates with different terms. The important thing for you to know is that you must research ahead of time. In 2006 for example, interest rates on many private student loans sat around the 5-6% mark. Many banks offered a rate of around 4.5% for consolidations. Keep track of these numbers and you'll be ready when a loan officer comes at you with a stack of papers.

Ensure most of all that the service you choose is a worthwhile lender with substantial history and good feedback. Do not consolidate your loans with a company that is relatively new because they are trying to draft you in with ridiculously low rates. ACS student loan consolidation is always a good choice, as well as Great Lakes as mentioned above. Whether you choose ACS student loan consolidation or not though, do a bit of research and make sure the name of the financial institute is reputable. It's a good habit to get into with your finances. One of the most under-used tools college students have at their disposal is the financial aid office at your school. The financial aid officers offer assistance on all matters and even if they don't know exactly, they'll likely have resources to help you research loan backers.

The Options

Once you've looked at your student loans, you should know how much you have to repay. Today's loans give you numerous options for repayment, so it's a matter of deciding how much you can afford and when you can afford it. Directly after student loan consolidation, Great Lakes, ACS, or the federal government will offer you any number of different repayment plans including:

Standard Repayment - The standard option that allows equal payments over the course of 10 years or more.

Graduated Repayment - Starting with smaller payments immediately and rising over time, this plan still offers a 10 year repayment schedule, but assumes you will make more money in later years. However, you end up paying more money in interest because the early, lower payments are often only interest payments, meaning your capital continues to grow for longer.

Extended Repayment - For those with incredibly large student loans, it's possible to extend your repayment schedule to anywhere from 12 to 30 years with similar overall terms to the above. Yes, I'm looking at that chiropractic debt; student loan consolidation is only the first step for that lump of loans.

Keep Your Paperwork

New to the financial world, you might not keep track of everything and file the necessary paperwork, but you should always have a physical copy of everything you sign, agree to, and plan to repay in your lifetime. This includes all of your student loan paperwork. These will not only help you keep track of what you owe and when you owe it, but how much you can deduct on your taxes for interest paid.

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