Saturday, June 28, 2008

Student Loan Balances

There are many benefits of student loan consolidation. When you consolidate your student loans, you can lock in low interest rates, reduce your monthly payments, simplify your life, and improve your credit score. In the coming weeks, we will be looking at each of the benefits in more depth.

As you probably know, credit scores play a major role in determining whether or not you get an apartment, house, car, cellular phone - the list goes on indefinitely. It's your way of showing companies that you are trustworthy and reliable enough to make consistent and timely payments on acquisitions that are more expensive. Having a bad credit score taints you, jeopardizing your chances of being approved by creditors.

Credit scores are negatively affected by late payments, incomplete or partial payments, defaults, and judgments and liens. The score can be broken down into several components: 35 percent of your score depends on your payment history; 30 percent, on your outstanding debt; 15 percent, the length of your credit history; 10 percent, recent inquiries on your credit report; and 10 percent, the types of credit your currently use.

Because a student loan is money owed, it adversely affects your payment history and your outstanding debt, which comprises 65 percent of your total credit score. This, of course, may be debilitating to your credit.

Stafford loans, which are the most common type of student loans, are often issued in subsidized and unsubsidized portions. An undergraduate student could graduate with as many as four subsidized Stafford loans and four unsubsidized Stafford Loans, totaling eight separate loans. Furthermore, most students don't make payments on their loans until after they graduate.

In summation, undergraduate students may have eight loans in four years without a single payment.

Graduate students who use loans to finance their educations leave school with advanced degrees and even more unconsolidated debt.

Obviously, there are extenuating circumstances. How can you, as a student, be expected to pay off your debts? You've been concentrating on schoolwork. How can a full-time student work full-time? Lenders recognize this and often offer grace periods, which exempt students from repayment for a few months after graduation.

Unfortunately, computers are responsible for calculating credit reports. For calculating machines, numbers are numbers, regardless of how compelling your story may be. Eight loans, four years, and no payments make a horrible combination.

A lesser-known benefit of consolidation is the fact that it improves your credit score. When you consolidate, your new lender pays off all of your eight loans, and then opens up one new consolidation loan. When a computer calculates your credit score, it will see this: eight loans paid in full. You will look like a responsible and trustworthy borrower.

Consolidation increases your credit score because it pays off all your old loans and reduces your number of open accounts.

And also, factor in that you will lose the deduction that comes with student loan interest, despite gaining a tax deduction for the paid interest on your home equity loan. The ideal thing to do here is to calculate, by crunching numbers, which loan option would best suit you in the long run. Make sure that you understand your options, as well as the ups and downs of home equity loan use to pay off your student loan balances.

By: Dhruv Mehta

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College Students loan

As many college students go through the rigors and necessary steps to finish their educations, once they're done and successfully graduated, they know it's time to start their own, independent lives. With school out of the way, jobs on the horizon and a bright future ahead many will be seeking to purchase their own homes - if not right away, sometime down the line. Going with the assumption that students will in fact buy a home within a 5 year span of graduating, they're probably also looking to satisfy their student loan balances within that time frame. Here is where opportunity lies.

If such a situation exists for you, where student loans need to be paid and you now own a home, there is a way in which you can use your new home to pay off your student loans. How, you might ask? Well, it's simply a matter of using a home equity loan to pay off your student loans, and quite quickly too.

Shortening Student Loan Pay off Through A Home Equity Loan

It's no surprise that most students coming out of college feel that paying off their student loans will be a long haul. Yet, to your delight, as many other students', there is a quicker solution to rid your self of student debt – through managing your debt responsibly and considering using a home equity loan. Considering here is mentioned merely because using a home equity loan to pay off your student loans is a two-sided financial action, having both ups and downs, defined pros and cons.

Take Into Mind Home Equity Loan Perks

When looked at and reviewed initially, it would seem that consolidating your student loans into a home equity loan would be a wise decision, one with little to think or worry about. This is so due to how home equity loans work. Since these types of loans essentially use your newly owned property as collateral, banks are able to offer much lower rates than the majority of what private student loans would. This is a saving grace, in more ways than one. Financially, you'll save literally thousands of dollars (via long-term interest payments), not to mention benefiting from added tax perks. And better still, in terms of lowering your total expenditures, home equity loans are tax-deductible.

But, Also, Consider The Pitfalls of Using A Home Equity Loan

It's clear that utilizing a home equity loan to pay off student loan debt is beneficial, yet it is still a bold and weighted move. Know that using a home equity loan isn't 100 percent without caution. Firstly, it's paramount to mention again that your house is used as collateral, which could be to your detriment, especially if rough times unexpectedly pop up, which could cause you to have to default on your mortgage. This could cause you to lose your home, which would be an awful thing to deal with. By: E.s. Cromwell

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