Consolidate your education loans for a better deal.
New laws that deal with student loans and consolidate them will affect many graduates. The good news is that the College Cost Reduction and Access Act, which took effect in July 2009, will provide better benefits for people looking to consolidate their student loans. Among those changes made by the student loan consolidation law are better interest rates.
Significance
Student loans have been troublesome to students for a number of years. Although the interest rates were relatively low, they still proved to be a problem, and took a very long time to pay back. The new laws were intended to partially solve this problem by providing even lower interest rates and creating a way for some to obtain student loan forgiveness.
Function
The new student loan consolidation laws will especially help those who are low income, or who have heavy debt loads at the present time. Student loan consolidations enable students with Federal education loans, such as Stafford, Perkins and the Grad PLUS loans, to combine them into one low interest loan. Currently, the interest rate is 5.6 percent, and this will even be going lower--to 3.4 percent until 2011--in two more steps.
Features
The law now places limits that enable low-income borrowers to have payments that are no higher than just 15 percent of their discretionary income. This limit, however, only refers to amounts made above the 150 percent of poverty level. Once they are in the program for 25 years, their existing debt at that time will be completely forgiven.
Effects
Only certain student loans are eligible for consolidation under this program. This includes the Federal Direct Loans (FDL) and the loans that are federally guaranteed (FFEL). Loans that parents take out, which includes the PLUS loans, cannot be consolidated. The only student loans that qualify for loan forgiveness when going into public service are the Federal Direct Loans.
Benefits
One of the main reasons why the College Cost Reduction and Access Act was passed enabling further reductions of interest on student loan consolidations was so that people going into public service could do so without having to pay off tremendous amounts of debt first. It did this by creating the possibility of giving them loan forgiveness if they had made payments up to that time and had been accepted into public service. The laws do not apply to private loans.
Considerations
Consolidating student loans provides the graduate with the possibility of getting even lower interest rates. While the ceiling rate is set, there is no established minimum interest rate. This means it is possible that an even lower interest rate may be obtained by looking around.
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