Higher education has become more and more expensive. The United States in particular faces skyrocketing costs for university. As a result, most American students now bankrupt their futures to enjoy the rite of passage and ingestion of mostly useless information named ‘College’. After you graduate, debt will become an unfortunate and creeping monthly reality. One way to deal with the crushing pain of student debt is to consolidate your student loans. Though this method won’t make your debt disappear it could make it more manageable. Here’s how to go about it as well as just what consolidation means.
Before you can consolidate, you need student loans silly. So enroll at a university and then prepare a plan to finance your next four years of debauchery. First, fill out a Free Application for Federal Student Aid (FAFSA). Save your responses because you’ll do this application annually. Your FAFSA will then go to both your school and the government. Go to your school’s financial aid office and ask them questions about what kind of in house aid you qualify for as well. Some schools have need-based financial aid as well as merit-based. If need based, you could receive a financial aid reward based upon your household’s financial status. Also, do this process before you make your decision on what school to go to!
Know Your Loans
Now, if your new home refuses you money or doesn’t give you enough money, turn to the federal government. If you’re in the States, and, let’s be honest, if you’re worried about student debt you’re probably in the States, apply for a Perkins Loan. A Perkins will get you up to 20 grand over the course of your four years. More importantly, it has a very low interest rate and no credit check. However, the way the Perkins works is that a set amount of money first goes to the school who then gives it out among its students. So how much you get will depend in part on your financial status as well as the financial aid office’s whimsy. You can also defer payment while you’re in school.
If the Perkins doesn’t cover all of it, apply for a Stafford Loan, another federal student loan. The Stafford is very similar to the Perkins. However, there are two types of Stafford Loans.
- A subsidized Stafford Loan means the government will pay interest while you’re in school, and these are typically awarded to those with the highest financial need.
- An unsubsidized Stafford Loan means you’ll pay interest, though you can defer payments until after graduation. The Stafford also requires you to pay a fee for applying.
Finally, there’s the PLUS. The PLUS lets you borrow a large amount of money that can cover almost all of your expenses, including books, supplies, etc. This loan is for your parents to apply for so they must pass a credit check, and they pay a fee of up to 4% of the loan.
Most loans have in school deferment, so you’ll only start paying them back when you finish school or the loan has been given to you in full. Once you graduate, you’ll start to receive different bills from the different loans you’ve taken upon yourself. A Stafford will give you a six month grace period after graduation before they start sending you bills, while the Perkins has a ten month grace period. This period is the time in which I recommend fleeing the country, but if you’re conscientious read on. The PLUS has a much smaller time period after final disbursement, about 60 days.
Now, consolidating your loans means that you’ll put all of these different loans into one monthly bill. You’ll receive a lower fixed interest rate as well as an extended period of time to pay the bill. Only ever consolidate after the grace period though, because the minute you consolidate you need to start paying back the loans.
Back in the crazy wild days of the West, the Stafford and the PLUS loans did not have fixed interest rates and the prospect of one made consolidating all the more attractive. Now, both have fixed rates so the main incentive for consolidating is gone.
But if you’ve finished your degree and now work in a low paying retail or service industry job, lower monthly payments will likely make your life a good deal easier. The only problem is that if you extend your period of repayment, you could be paying student loan bills well into your thirties, a point in your life where you’ll likely be dealing with a mortgage, car payments, and little Johnny’s college fund (because he will go to college and he will not deal with the crap you dealt with right?). And since you extended the repayment period, you'll probably end up paying more in the long run since there’s more time for accumulated interest.
If you’ve decided to go ahead and do it, you should apply on StudentLoans.gov. You’ll need to simply fill out an application while also indicating your current loans and servicer.
Student loans are an unfortunate reality, and hopefully you'll be able to find a good way to deal with them effectively.