Mount Pleasant 4/9/2015 1:52:10 PM
News / Law

The Basics of Student Loan Consolidation

With over $1.1 trillion in student loan debt, the American student/graduate is scratching their head wondering how to deal the impact of this massive debt. Student loan debt has now become one of the major drain on the American pocket book. The Government has created some assistance programs to help the average graduate face the demands of their student loan debt.

A student in a university program faces the dilemma of how to finance their college degree. More likely than not they turn to financial assistance in the form of a loan or grant. Loans differ from grants in that a grant does not have to be repaid to the grantor. However, a student loan must be repaid and are extremely hard to discharge or to get forgiven. In 2005, the United States Congress passed a law that made it extremely difficult to discharge student loan debt in Bankruptcy.

The most common way to deal with Student Loan Debt is to do a “Standard Consolidation”. The standard consolidation combines all of the qualified loans together into one loan. The interest rate is averaged and a monthly repayment plan is setup for the next 10 years. There is also a “Graduated Plan” that allows a debtor to begin with a lower monthly payment and gradually increase the payment size throughout the 10 year payment cycle. For higher balanced loans the period of repayment can be increased to 25 but are based on credit worthiness of the borrower.

There are Income Based Programs to assist the Student Loan borrowers that have financial hardships. However, these programs have special rules and requirements associated with them. A borrower should seek qualified advice in the form of a comprehensive loan review. The income based programs establish payments based upon a percentage of your disposable income as determined by the Department of Education. The payment can be as low as $0 dollars a month or more than the Standard plan depending upon your individual circumstance. Income base programs typically have a term of 25 years. The borrower is required to recertify their income with the Department of Education every year. Your payment will change depending upon your income. If a borrow fails to meet their payments, then they are automatically placed back into a Standard program which could drastically increase their payments. However, if all of the payments are made timely over the 25 year period, in most cases, whatever balance is remaining is forgiven. There are very specific guidelines governing the implementation of the forgiveness and which type of loans that may be considered. The Student Loan Law Group seeks to guide borrowers in making a well informed decision on how to manage their student loan debt.