Student-loan consolidation

Student-loan consolidation

This time of year, millions of college graduates face a reality of life after academia: With the six-month grace period on student loan repayment coming to an end, it's time for them to start making good on their debt.But this year, one popular option--student loan consolidation--is harder to come by.Consolidation loans are a type of refinancing for student debt. Graduates can lump all their college loans together, merging multiple bills into one and potentially lowering the interest rate.

Not anymore.The credit crunch has made it expensive for many lenders to raise the loans funds they need to create new loans. In addition, a law passed last year by Congress reduced the subsidies on federal loans that lenders receive from the government."Students Consolidation loans are, in effect, on their way out," said Mark Kantrowitz, publisher of FinAid, which tracks the student loan industry.Still, they're not gone entirely. Depending on your situation, consolidation loans may be an option. And even if you don't qualify, there are other ways to ease your monthly repayment burden.Here's some guidance: -- Go direct with federal consolidation.Virtually no private lender will consolidate federal student loans anymore.

But there is another option: You can consolidate your loans through the U.S. Department of Education's Federal Direct Loan Program.The government has become, in a sense, the lender of last resort, the consolidation loans are the same as those offered from private lenders. You even receive a 0.25 percentage point discount on your interest rate if you pay your monthly bill with automatic debit.

Rethink private consolidation Although you can consolidate federal loans, you cannot include private loans in the deal. Those must be consolidated separately.And only half a dozen or so lenders offer private loan consolidation. Borrowers now must meet stricter lending standards--higher credit scores and income levels, among other things--to qualify. Federal loans ignore these factors, making them more borrower-friendly.In many cases, to qualify for a loan with attractive interest rates, you need a FICO credit score of 700 of higher, up from 650 previously, according to Jon Rudy, director of student loan products at Edvisors, a resource on student loan options. You also need a debt-to-income ratio well below 50 percent.As such, it only makes sense to consolidate private student loans if your credit standing is stellar, especially if you hope to lower your interest rate.You can bolster your odds by applying with a co-signer, such as a parent, whose credit history may be better than yours. And your parent may not be on the hook forever: In many cases, private consolidation loans release co-signer of their obligation after 24 to 48 consecutive on-time payments.Regardless, make sure to do the math and compare whether a private consolidation loan would save you money. Keep in mind that consolidation loans generally extend the repayment period from the standard 10 years to as much as 30 years, reducing your monthly bill but adding to your overall cost.Also, be mindful of fees, which can amount to as much as 4 percent of the principal you owe. Shop around. -- Consider alternative repayment plansOther repayment options may be available.