Student Loan Consolidation Lowdown

Bogged down by rising tuition fees and don’t know which way to turn? Well, if you do think of putting that upcoming tuition bill on a credit card, just check with your university before you try to do so. Many universities now impose additional fees on students and parents who pay by plastic. Some of them even refuse to accept certain credit cards altogether.

Universities have to incur increasing costs in processing credit card transactions. Like merchants, universities and colleges are charged a fee every time a credit card is swiped. When you charge $20,000 or more, the consumer loves it because they get points or miles or some other benefit; but it’s a very high fee for the actual school. A fee that schools and colleges are increasingly reluctant to pay.

The rules for college loans have changed and how. As of July 1, new Stafford loans are fixed at 6.8 percent and new PLUS loans will be 8.5 percent, a benefit if interest rates continue to rise. Variable rates on loans issued before that date, that have not been consolidated will be reset once a year. Dfw.com reports:

Before, freshmen could borrow up to $2,625 in Stafford funds. The new limit will be $3,500 starting July 1, 2007. Caps for sophomores will go from $2,500 to $4,500, and graduate and professional students will be able to borrow $12,000 a year instead of $10,000.

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Students had this problem of not having a voice when it comes to selecting a good lender of their choice for consolidation of their loan with the single-lender rule. But, not anymore, as students can pick and choose, yet for a definite period.

President Bush, did some good for the students by signing into law - the emergency supplemental spending package. According to the decision taken, students’ borrowings can be consolidated — their federal student loans with the lender of their choice at low interest rates.

In order to take advantage of the low interest rates, student borrowers are now being urged to consolidate quickly. The reasoning for this is that well-established company offers low rates and unmatched benefits and incentives to all student borrowers. By consolidating soon, student borrowers will avoid an interest rate hike. This was surely a way to give some amount of choice to the student community, which was for long denied this privilege in the market driven era.

With changing times, repayment option ways have changed too. The possibility of clinging to one way of repayment option like the fixed or equal payments spread over a specific term is no more. This option is still available but not the only one. You can now choose from many because of the increasing number of students require loans to finance their academic dreams. The situation is such that with increasing amount of students’ debt, lenders take it as an opportunity to offer flexible repayment plans giving a flexibility factor to financial matters.

Among many such plans are standard repayment plan where one pays a fixed amount each month for a particular number of years. In graduated repayment plan the payments start out low in the early years of the loan but increases in later years by the time a student fits into a constant income mode. Then there are extended repayment, income sensitive repayment plans for students to pick from where time factor and earnings decide your repayment mode, respectively.

Going for the Federal Consolidation Loan Program enables borrowers to some key benefits. These benefits act as a lucrative option as they cut the monthly student loan payments by up to 50 percent, leaving them with more disposable income to meet other expenses. Also, it allows combining all payments into one simple and convenient monthly bill. The benefits doesn’t cease there. It reduces the interest rate when payments are automatically deducted from a checking or savings account and deduct student loan interest on their federal income taxes (in many cases). One could also earn cash back for on time payments.

Student loan interest rates are variable until consolidated when it comes to Federal loan program. Experts predict that rates would increase by 2.5 percent on July 1, 2006. Thus it is a clear indication that by consolidating now borrowers can avoid the risk of higher rates and payments. The application process is simple, and there are no credit checks or processing fees.

I know this isn’t a good time to talk about life after college but as the interest rates are set to jump again, this is the perfect time to highlight the plight of the students. You are spending a big part of your youth pursuing higher education, taking ever-costlier loans to pay for this high-quality education. And THEN, you join the ranks of the educated poor who are trying hard to repay their student loans and make ends meet.

As interest rates are hiked yet again, this is one story that will be repeated time and again unless some action is taken. Today, many people in their 30s and 40s are forced to watch their budget minutely, juggle bill payments and live from one month to the next. They just don’t have enough money to save up for that retirement that they richly deserve, and many of them go without what we would consider basic necessities today: dishwasher, cell phones, cable TV, new cars… the list is endless.

And here is the worst bit: Experts don’t see the situation getting any better in the near future. According to statistics, around 40 percent of students are graduating with ‘unmanageable’ debt loads. In lay terms, this means that their salaries will not be enough to help them pay back the loans.

Of course, a college degree many give a student a higher earning potential, but a costly education has its downsides as well. Burdened by student loans, many graduates are staying away from socially critical jobs like teaching and social work and are looking for well-paying jobs that will help them repay their loans in real time.

Confused with all this clamor about consolidation and don’t know if it is for you? Well, take a deep breath and then contact your school/college counselor to know if consolidation will work for you. Yes, the deadline is almost here, but don’t jump just because everyone else does so. Msnbc.msn.com reports:

If you just graduated this spring, by consolidating now, you may have to start paying your loans back sooner.

Read more: Student Loan Consolidation

While just about everyone is on about the benefits of consolidating, quite a few people want to know what happens if you DON’T consolidate. Well, for one, not consolidating to a fixed-rate loan will leave recipients vulnerable to possible future increases in variable rate loans, according to experts. Toledoblade.com reports:

After July 1, Stafford loan rates will be locked at an average of 6.8 percent, while variable interest rate loans can still increase up to 8.25 percent in future years. The legislation will set a fixed rate for any new loans or consolidated loans and will also prevent students who are not graduating from consolidating after June 30.

Read more:Student loan rates to increase 2 percent

In reel life, all college students have to worry about is getting through college, finding themselves a soul mate and having a good time. In real life, they are a depressed lot, their enthusiasm dimmed and subsisting on cost-efficient fast food so that they can save up some money to pay off their debts. Painful? The truth always is. The realities of college life quickly quash many graduates’ sense of idealism. The harsh truth is that bearing the burden of student loans can be overwhelming.

Of course, the number of agencies that provide aid is growing rapidly. But this growth is somehow unable to prevent an increasing dependence on borrowing money, according to the College Board. Mtv.com reports:

Graduates are soon saddled with debt during a financially fragile period of their lives. In fact, a recent survey titled "The College Debt Crunch" revealed that 42 percent of responding college graduates with student loans live paycheck-to-paycheck. Meanwhile, desperate times call for desperate measures: 34 percent even claimed to have sold possessions to make ends meet.

Read more: This Is The Real World? Debt Drives Grads Back Home With No Plan

This is an annual feature: parents and students wondering about the big consolidation question. While most students this year will not have to think too long before saying yes, there are still quite a few people out there who haven’t been able to demystify the consolidation conundrum. Heraldnet.com reports:

Recent changes in federal legislation will prohibit in-school borrowers from consolidating beginning July 1. This is why if you are in school, you need to beat the June 30 deadline. I should also note that federal student loans first disbursed on or after July 1 will now have a fixed interest rate of 6.8 percent for the life of the loan. This fixed interest rate will apply to both in-school/grace and repayment periods.

Read more: Demystifying student loan consolidation