Virtually all federal student loans are eligible for consolidation! Even if your loan is in default you may still qualify for student loan consolidation. Also, lenders may not refuse to consolidate your loans because of the number or type of loans you want to consolidate, the type of school you attended, or the low interest rate mandated by the government and repayment schedules.
Note: The only exception to eligibility is if a judgment or wage garnishment is already in place.
Rules for Student Loans in Default Programs
WARNING: The statute of limitations on defaulted student loans was eliminated by the Higher Education Act. Section 484A removes all limitations and gives the Department of Education or the guaranty agency (bank or lender) the ability to file suit, enforce judgments, initiate offsets, or other actions, to collect a defaulted student loan regardless of the age of the debt. Statutes of limitation are no longer valid defenses against repayment of a student loan.
No Fees: You will not be charged any application fees or prepayment penalties when consolidating student loans!
No Credit Checks: Consolidating student loans is a FREE government program that does not require credit checks. (Exception: PLUS borrowers are subject to a check for adverse credit history.
Payback Period The payback term ranges from 10 to 30 years, depending on the amount of education debt being repaid and the repayment option you select. Your other education loans not included in the consolidation loan are considered in determining the maximum payback period.
Interest Rates: Federal statute sets the interest rate on consolidated student loans at NO HIGHER THAN 1/8th of a percent more than the effective rate on your individual loans fixed for the life of the loan thus, you are protected from future increases in variable rate loans!
There are three basic repayment options for consolidation loans:
- Level-repayment (this means equal installment payments over time);
- Graduated repayment (payment amount increases over time; and
- Income-based payment plans (payment amount increase or decrease is based on income.
Repayment incentives come in the form of lower interest rates and/or rebates and are based on your on-time repayment history and payment amount. Higher payments mean sooner payoff which equals better incentives.
Two federal income tax credits—dollar-for-dollar reductions in tax liability—are available for higher education expenses.
The Hope tax credit, worth up to $1,500 per student, is available to first and second year students enrolled at least half time.
The Lifetime Learning tax credit is equal to 20 percent of a family’s tuition expenses, up to $5,000, for virtually any post-secondary education and training, including subsequent undergraduate years, graduate and professional schools, and even less than half time study.
Also, interest on student loans might be tax deductible!
Always check with your tax consultant to be sure you qualify for these tax credits!