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Alternative Student Loan Consolidation

When a student is looking to attend college, they will generally have to take out more than one loan. Firstly, they will require student loans to cover each semester that they are in school, which are likely to come from various sources. In addition to this, a student may also require certain private loans from banks and financial institutions. Repayment of most student loans will not generally begin until six months after a student has graduated or they are enrolled at school less than half-time, but unfortunately, many students find that these numerous loans are too much to handle.

This is the exact reason why customers seek alternative forms of student loan consolidation. As mentioned, most of a student’s original loans will come due at the same time, and the monthly payments can soon mount up. In fact, some students find that these loans are pretty impossible to afford. A student loan consolidation will work in exactly the same way as a traditional debt consolidation loan, and is intended to provide one larger loan to cover several smaller student loans.

The main benefits of student loan consolidation include:

  • Lower monthly payments – Most borrowers will typically find that they can reduce their monthly payment by extending the term of their private student loan debts.
  • Reduced interest rates – A borrower may find that their credit has improved significantly by the time they graduate, and therefore this may help to reduce the interest rates offered on a new loan.
  • Rate reductions – Once again, a borrower can apply on their own or with a co-signer for an alternative student loan consolidation to receive lower APR loans due to superior credit.
  • Internship/residency and military deferment – There is a 48 month deferment period for medical and dental residents, and a 36 month deferment period for all active-duty military personnel.
  • Repayment terms – An undergraduate borrower can extend their repayment term up to 25 years, which will allow them to have the lowest possible monthly payment, and graduate students can further extend the term of their loan up to a 30 month repayment period.
  • No prepayment penalties – Any payments that are made in excess of the scheduled payments will go directly towards the principal, and therefore there are no penalties for overpaying the loan.

Many lenders will also offer federal student loan consolidation which allows borrowers to apply for a fixed-rate refinancing program that can combine all of a student’s existing federal student loans into one loan. This will, once again, simplify finances, as a borrower only has to worry about one loan and one payment. There are typically no credit checks, fees, or application charges for federal student loan consolidation, and this may enable a student to cut their monthly loan payments by up to 50%.

A federal student loan consolidation will allow a borrower to extend their term from the standard 10 years up to a maximum 30 years, although this will very much depend on the lender and the amount of educational debts a student has. However, it is widely accepted that lower monthly payments will mean that a borrower has more money available to spend on other living expenses, such as housing expenses, car payments, and any career-related necessities.

Federal student loan consolidation will include federal Stafford loan consolidation, PLUS loan consolidation, direct loan consolidation, Perkins loans, HEAL loans, and any federal FFELP and direct loans a student has used to pay for their education. It is extremely important to note that private student loan consolidation will be treated differently from federal student loan consolidation, as the borrower will lose any federal loan benefits if they decide to consolidate their loans into a private loan consolidation.

Once a borrower has applied for a student consolidation loan, their lender will begin the loan retrieval process. The lender will contact a borrower’s existing lenders to ascertain the exact amounts owed, and this information is provided in the form of a loan verification certificate (LVC). The process may take up to 60 days to complete, although this will depend on the response time of existing lenders.

A check or number of checks will be sent to the borrower’s existing lenders, and then the loans have officially been consolidated. The borrower will then receive a new statement detailing when their first payment and subsequent payments are due. However, borrowers should be aware that their previous lenders may still take a week or two to close the previous loan accounts, but this is no cause for concern.

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