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Paying Off Student Loans

Find out if student loan consolidation is right for you and if so, where you should go.

By
Laura Adams, MBA
August 30, 2011
Episode #124

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This podcast is for all you graduates or parents of graduates who have student loans.

Paying Off Student Loans Using Consolidation

Now, on to student loans. This topic was inspired by Stacey from St. Paul, Minnesota who sent me an e-mail. She writes:

I graduated last May and finished my student teaching this winter and finally started to look at student loan consolidation. None of the websites I've looked at can help me and I don't know where else to look. I've got at least $100,000 in student loan debt and I really want to make sure that I do this correctly! Please help!

Stacey, thanks for your e-mail. First of all, for those who may be unfamiliar with loan consolidation, it’s a strategy to help lower monthly debt. A loan consolidation allows you to lump together two or more loans into one new, bigger loan with a fixed interest rate. You can work with any lender you choose, and usually there are no loan consolidation fees. The lender pays off your existing loan balances and replaces them with a single loan, so you just have one monthly payment to make. Both students and parents can consolidate education loans; however, they can’t combine loans that are in different names. Only loans from the same borrower can be consolidated—even married couples must keep their respective education loans separate. And be aware that students can’t consolidate education loans while they’re still in school.

Loans That Can Be Consolidated

You can consolidate most federal student loans, but finding lenders that will consolidate your private loans is more difficult. And remember that if you only have only one student loan—whether it’s federal or private—you can always refinance it by itself. You can even re-consolidate a consolidation loan if you have at least one additional loan to add to it. And yes, to make matters even more confusing, you can consolidate two consolidation loans! But you can’t consolidate or refinance a single consolidation loan by itself.

Repayment Plans

The same repayment options that exist on underlying loans will also apply if you choose to consolidate them. Some types of loans such as federal Direct Loans and Federal Family Education Loans (FFEL) offer a variety of repayment options. They include extended repayment, graduated repayment, income-contingent repayment, and income-sensitive repayment. I’ll include a link to The Guide to Federal Student Aid in the show transcript at moneygirl.quickanddirtytips.com for more details on all these repayment options.

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