Once you have earned your degree, you will need to start thinking about repaying your student loans. There is a six-month grace period after you complete your classes. If you are getting close to the time your loans are due to begin repayment and you cannot make the payment, you may want to get a forbearance or a deferment on your loans to prevent them from going into default. If you have loans over $10,000 it might be beneficial for you to consolidate your loans. Consolidation can reduce your monthly payments by as much as 50% or more, set them at a fixed rate, and extend the time for repayment from 10 years to as much as 30 years, depending on the size of the loan. Be sure to research the interest rates on the consolidation loans and compare them with your present loans before making a decision. Rates on these loans change on July 1 of each year, so it is important to keep that in mind when applying. You may want to lock in the rate if you believe it is lower than the new rate will be. The six types of loan repayment plans will be discussed in Step 3. Be sure to study each one to see which best applies to you.

The first step is to start researching on the Internet. You will want to check all the companies that offer loan consolidation. Consolidation is available for both federal and private loans. If you have a federal loan you will want to apply for it in your name only. If you have a spouse, he or she will not be liable for your debt if anything happens to you. If you are applying for a private loan consolidation you will want to do it jointly, as the federal rules do not apply. Next, you will want to check the interest rates for the different companies and find the best fixed rate. Because of the economy, some loan companies are not doing consolidations. Direct Loans, better know as the William D. Ford Federal Loan Program, is presently doing consolidations. http://www2.ed.gov/offices/OSFAP/DirectLoan/index.html

There is information on Direct Loans at http://loanconsolidation.ed.gov/forms/forms.html. There you will find instructions and an application (both paper and online). There are also other instructions and forms that are necessary to apply for a consolidation loan. This information can help you make a more informed decision on whether or not consolidation is right for you.

Before you begin filling out the consolidation application, the first thing you need to do is go to the National Student Loan Data System and retrieve all your loan information.www.nslds.ed.gov/ You will need your security code from your FASFA application, so be sure to have it available. The application will ask for specific information and it is important you have everything ready before you begin the procedure. You will have a choice to either apply for the loan by mail or online. If you want to do it by mail, you need to call the loan company and request an application be sent to you. Either way, it is important to have all your information handy.

The second step in the process is to gather up all the information on your loans from the National Student Loan Data System. You will need the name, address and phone number of the lenders. You will also need the type and amount of each loan with each lender. Keep the subsidized and unsubsidized loan amounts separate and list any other types of loans. To get this information, go to www.nslds.ed.gov. Click on Financial Aid Review. Accept the Privacy Statement. Accept the 128 bit encryption. Then enter the required information which is your Social Security number, the first two letters of your last name, your date of birth, and the PIN number you used for your FAFSA application. If you don’t have that number, you will have to go back to the FAFSA site and request it because you can go no further without it. After all the information is entered, your report will come up and each loan will have a number in front of it. Get a piece of paper and write down the type of loan and the amount, then click on the number to get the information on the lender. Do this for each loan. You will need this information to enter into the application. If the interest rate is specified, write that down also.

You are now ready to begin filling out your application. Go to the website you have chosen for your consolidation and download the application. At the end you will have to choose a repayment plan. See Step 3 for choosing the proper payment plan for you.

Which Repayment Plan is Best?

The last step in the process is choosing which type of repayment plan you want to use. Read them carefully and decide which one is the best one for you.

Standard: This payment plan is set at a fixed interest rate and has a term of up to 10 years.

Extended: This is the same as standard except the term extends from 12 to 30 years.

Graduated: These payments start out small and increase over time as your income does. These payments are no less than 50% and no more than 150% of the standard payment. The term is from 12 to 30 years. Monthly payments are a minimum of $25, and at least the monthly interest owed. The first three options are the only options available for parent loans.

Income contingent: This option is open to Direct Loan consolidations only. The term is up to 25 years and any balance on the loan is discharged after the 25 year period. They are based on the income and the amount of debt of the individual. There is a $5 minimum repayment.

Income sensitive: These repayment plans are based on a term of 10 years and a percentage of 4% to 25% of the gross income of the individual.

Income Based: These repayment plans apply to Direct Loan and FFEL Program consolidations only. The payment is capped at 15% of discretionary income.www.finaid.org

Things to Consider before Consolidating:

There are some other things you need to consider when consolidating your loans. If you have a Perkins or health professions loan, consolidation will cause you to lose the interest subsidy on these loans. This means during qualified deferment periods, you will be fully responsible for paying the interest that accrues. In addition, borrowers with these types of loans are also eligible for additional loan cancellation benefits, such as performing certain kinds of public service. When you consolidate these types of loans you lose these benefits. Lastly, Perkins loans have a grace period of six to nine months and health professions loans have a grace period of nine to twelve months. If your consolidation is completed before these grace periods are up, you will lose the unused months left in the grace period.