Leaving college can be a great relief--until you have to start repayment on your student loans. Students frequently have multiple student loans and lenders. Keeping track of payments can be challenging. Federal student loan consolidation provides a way to simplify repayment.
Student Loan Consolidation and Your Credit
One of the foremost benefits of consolidating student loan debt is that it can help you make timely payments. If you have a number of student loans, it's easier to forget a payment or lose track of which loan payments you've made. By consolidating your student loans into one consolidation loan, you can make one monthly payment, which is generally lower than the total of all monthly payments on the underlying loans. Depending on the terms of your student loans, you may also have a reduced interest rate. Be aware, however, that a consolidation loan is generally about convenience. Your consolidation loan can have a longer repayment period, which means you may pay more over time. Consistently making consolidation loan payments can also help you establish a good credit history.
Student Loan Consolidation,and Your Credit
When student loans or consolidation loans enter repayment status, your lenders report payment activity to one or more of the three major credit reporting companies--Equifax, TransUnion, and Experian. These companies track your repayment information and develop credit reports in your name. The credit reporting companies also assign credit scores for each consumer. Paying student loan debt on time helps you establish a good credit score, which is used to determine your eligibility for car loans, home loans, and credit cards. If you already have credit problems, repaying your federal consolidation loan on time can help you rebuild credit.
Student Loan Consolidation and Credit Problems
You may qualify for federal student loan consolidation if you've missed making some payments. To learn more about eligibility requirements for federal student loan consolidation, contact your lender. It's important to know which loans qualify for consolidation and how to handle student loans that are in default. Here's why.
- Rehabilitating defaulted student loans can improve your credit history: If you make repayment arrangements and meet specific terms for repaying your student loans for a specified period of time, eligible defaulted student loans may be considered "rehabilitated," and negative payment information won't display on your credit reports. If you consolidate student loans without rehabilitating them, your student loans are shown as paid off but missed or late payments prior to consolidation remain on your credit report.
- Consolidating Federal Perkins Loans can cause loss of potential benefits: Federal Perkins Loans provide a benefit for students to have all or part of their debt forgiven under certain circumstances. Typically, students who enter certain professions can qualify to have a percentage of Perkins Loan debt forgiven for each year they work in a qualified job. Your school is your lender for Perkins Loans. Discuss consolidating Perkins Loans with your school's financial aid office; if you consolidate them, you are no longer eligible for loan forgiveness.
Contact your lenders for more information about the potential benefits of federal student loan consolidation.
Source
What are the Benefits of Direct Loan Consolidation?
About the Author:
Karen Lawson started writing stories about birds and surfing at an early age. For more than ten years, she enjoyed a productive corporate career in mortgage banking before moving to Reno, Nevada in 1997. Karen earned BA and MA degrees in English (specializing in writing) at the University of Nevada. Significant areas of research and writing include truth and ethics in creative nonfiction, medical humanities, and the symbolism and lore of birds in American literature and culture. Karen has taught English at a community college, is writing a collection of poetry, and enjoys birdwatching and walking her basset hounds.
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