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How To Consolidate Student Loans If You Have Bad Credit
from: Kyle BesserMillions of Americans borrow money through student loans each year. After they graduate, they can end up with multiple student loans. Many consolidate education loans to pay off high interest loans to cut their monthly expenses. Many of these borrowers have less than desirable credit. Others wish to avoid a bad credit rating and the cost of delinquent and defaulted student loans.
Federal Consolidation Loans
Nearly every college student carries at least one federal student loan, either through the William D. Ford Federal Direct Loan Program or the Federal Family Education Loan Program. The purpose of the federal funds is to allow students bad credit education loan access to college funds when they might not otherwise be able to go to college. Federal consolidation loans available for bad credit education loans are almost all free of the dreaded credit check thus allowing students bad credit education loan options.
Federal Direct Consolidation Loans
Direct Consolidation Loans have been made an integral component of the Federal Direct Loan Program, specifically to assist borrowers with multiple student loans a means to manage the rising costs of a college education. Most Americans end up having to juggle multiple student loan payments. Many take stock of their financial situation and consider consolidation of their student loans.
The Direct Consolidation Loan is made directly through the U.S. Department of Education. Your direct loans are paid off and a new loan, the consolidation, is issued. Repayment terms are extended to allow for smaller monthly payments.
The Direct Consolidation Loan only requires a credit review for those borrowers consolidating PLUS loans. The credit review does not rate one's credit, but instead purposely check for "adverse credit history." To qualify for a Direct Consolidation Loan, eligible borrowers must have at least one Direct Federal Loan or a FFELP loan that has been turned down for consolidation through a FFEL lender.
Terms of the Direct Consolidation Loans include:
*A fixed interest rate (this is since July 1, 2006) based on the weighted average of your federal loan interest rates on the date you apply for consolidation. The average is rounded up to the next 1/8th percent. The federal government has put a ceiling of 8.25% on the interest rate. Your consolidation loan will have this rate for the full life of the loan.
*Consolidation of multiple direct loans may allow you to cut your monthly payments in half.
*Direct Consolidation Loans have no fees.
*You may be able to consolidate most defaulted education loans if you make satisfactory repayment arrangements with the current education loan services or servicer or agree to repay your new Direct Consolidation Loan under the Income Contingent Repayment Plan or the Income Based Repayment Plan.
If you have a Direct Consolidation Loan, you cannot consolidate again unless you include an additional FFEL or Direct Loan. If you have a FFEL Consolidation Loan you also may be able to consolidate again under certain circumstances. For additional details, go to www.loanconsolidation.ed.gov.
Federal Family Education Loan Program
On 24 April 2009, President Barack Obama called for an end to the FFEL program. On March 26, 2010 the passage of the Health Care and Education Reconciliation Act of 2010 eliminated the program. No subsequent loans are permitted to be made under the program after June 30, 2010.
The Federal Family Education Loan Program (FFELP) was widely available through student loan providers and private banking lenders. The FFELP also included the Federal Consolidation Loan. Nearly every FFELP lender featured the consolidation loan. If you had poor credit or no credit, you also wanted a way to consolidate without a credit check. The FFELP loans, including consolidation, required no credit check, regardless of lender.
Private Student Loan Consolidation If You Have Bad Credit
If you have bad credit, it will be harder for you to consolidate private student loans on your own merit. Legitimate lenders require at least a decent credit history.
One way to get around this is to apply for a private consolidation loan with a co-borrower with good credit. Look for a consolidation loan product that will allow you to release your co-borrower from the loan after a certain number of consecutive, on-time payments have been made. This gives you an opportunity to rebuild your credit.
Private student loan consolidation products came bundled with terms specific to each lender, but they all typically have a variable interest rate, flexible repayment options, and require you have a minimum amount of private student loan debt to qualify. A few allow you to include educational loans you may have had for computers, textbooks and other costly items in your consolidation.
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