Saturday, February 14, 2009

Education Loan Consolidation Options

By Dennis Powell

So you've worked your tail off for the last several years eating Ramen and pulling all nighters while living on your student loans that almost covered the bills, and now you've got a great job, a new life and a mountain of debt. Life next pop quizWhat do you do? Fortunately for today's education Loan borrowers there are plenty of options to help you get your new life started without having the old one hanging around your neck like an anchor. There are plenty of student loan consolidation options available for the savvy borrower, and one of them will probably fit your life.

Most people start their borrowing with a Federal Family Education Loan or FFEL. FFELs cover both subsidized and unsubsidized loans, and an FFEL consolidation loan can wrap both of a borrower's federal loans into a single manageable package. FFEL consolidation programs offer extended repayment terms and fixed rates, and in some cases even those who have been in default in the past can qualify. If you have any federal education debt an FFEL consolidation loan should be the first place you look.

Private consolidation loans can package all of your non-federal loans into a single easy to make payment often with extended terms to lower the monthly bite even more (Though at the price of a higher overall cost.) Private and federal loans cannot generally be consolidated into the same package due to the variance in interest rates between them. Private loan interest rates are based on the borrower's credit rating so if your credit rating has improved since graduation - through a better job, etc. - they may be a good option.

Many parents use the PLUS loan program to borrow for the children's education. PLUS loans can be consolidated using a PLUS consolidation program much which offers similar benefits and potential pitfalls of FFEL and private consolidation - fixed rates, and lower payments spread over a longer term. Plus loan consolidations are great for some people but parents need to take a good look at all of their options before consolidating.

Even if none of the traditional consolidation methods work for your situation, there are still alternatives to help students get started on the right foot towards financial solvency. Some people take out second mortgages on their home and use the money to pay off all of their loans. ( An added benefit of this method is that you may be able to retain some of the tax benefits of regular consolidations) Private personal loans from family members can also help those with poor credit, and some companies offer tuition reimbursement programs which may help off set up to 100% of your education costs.

New technologies have come to the lending world where the idea of peer-to-peer programs and micro-financing has taken root. Peer to peer financing allows the borrower to present a request for funding to a group of potential "micro-investors" who then bid on the loan by offering different rates and terms. Once a deal is struck the network services the loan, ensures payments are made and the necessary paperwork is taken care of. For borrowers with needs outside the comfort zone of traditional banks a P2P loan may help them get started down the path to getting their loans paid off.

Making the transition from school life to your career is a road with more than its share of lessons and challenges. Having to make large student loan payments on an entry level salary while trying to save cash for a professional wardrobe, deposits on housing, and other "grown-up" essentials is enough to stop that progress dead in its tracks. There are many things to consider when applying for a consolidation, but knowing that you have options available can help make your transition manageable.

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