Student Loan Consolidation Guide

New College Graduate? Got Overwhelming Student Debt? Take Charge of Your Financial Future!

Graduating from college can be a fearful event in this economy. The uncertainty of finding a job in your field and a looming student loan debt sets in as the big day of graduation arrives.

Every time a student takes out a student loan, the student must sign a promissory note, which holds the student to promise to pay back the debt when they are no longer a student. For most, it is fairly easy to rack up between $30,000 and $50,000+ in student debt by the time graduation rolls around! It is very common for the loans to be with multiple lenders. As soon as graduation day is over, the bills start to roll in.

If the student has not already organized the loans, after graduation is the time to take charge of the debt. Failure to respond to the bills by their due dates will cause the graduate’s credit score to decline. Failure to pay for 3-6 months may result in the loans going into default.

Defaulting on loans means that the student did not pay the loan back as promised and the loans are sent to a collection agency and posted on your credit report. A new graduate does not want the harassing phone calls of bill collectors and to wreck their credit score! So, what should a new graduate do that cannot find a job right away and feels overwhelmed by all the bills coming in?

It is recommended that the new graduate try to consolidate their multiple loans into one loan payment. Consolidation is simply having one bill a month, instead of 4 or more a month. It saves time, streamlines the process and makes the debt a lot less stressful by working with just one lender.

First step: Organize all your student loan bills from every lender. Don’t wait; act before the loans first payments are due!

Second step: Contact an organization such as VSAC (Vermont Student Assistance Corporation) or the U.S. Department of Education’s Federal Direct Loan Consolidation for assistance in consolidation. Organizations such as these will contact all your lenders and take on the debt from the original lenders. Consolidation lenders should never charge you fees for consolidating your loans, so be sure that the organization is a legitimate one.

They will offer you a consolidated loan which will be one payment to one lender, instead of payments to many lenders. Organizations such as VSAC will offer you a fixed percentage rate on your loans and are as reasonable as the economy allows.

Third step: The graduate will need to make three major decisions on repayment of the consolidated loan. These decisions can be changed easily if needed.

Choose whether you need to defer your payments, which you can do for usually 6 months until you find a job. If you can start paying right away, then it is smart to do so.

Choose whether you want a graduated payment plan or a fixed payment plan. A fixed payment entails making a payment each month that is always the same amount. A graduated payment involves payments that start out low and increase over time. Graduated payments are smart for graduates who are not making a lot of money right out of school.

In my personal case of owing $50,000 in loans, my first graduated payment amount was $162.00. Now four years later, my loan payment is $190.00. It will increase over the years and hopefully so will my income. If I had flat payments, I would have had to start out at $350.00 a month. I knew that I could not keep out with that but I knew I could make regular monthly payments of under $200.00.

Choose how long you the life of your loan will be. Often the graduate can choose a 10, 20, or 30 year repayment plan. Paying the debt off quickly will save the graduate money because the interest over the life of the loan will be less. However, for someone with a lot of debt, it may only be reasonable to pay it over a longer period, even though the graduate will pay more in interest.

If I had chosen a 10 year repayment loan, I would have had to pay $650.00 a month. This would have led me to default on my loans. The new graduate must agree to an amount that is reasonable and that they know that they will be able to pay faithfully for years to come!

Student debt does not have to be overwhelming, there are always options! Graduates need to take control of it so that they do not wreck their financial future before it even begins! Consolidation makes paying student loans stress free.