|By David Pilley on February 3, 2011
Few people can actually pay for college upfront. This should not deter you from going to college, however, because you have the ability to defer all tuition expenses until after you graduate. You can do so with the combination of private scholarships, government grants, and student loans. If you need a college degree for the line of work you plan on entering, you should worry less about the cost and more about the actual coursework.
After you graduate, however, paying back your loans will become an issue, especially if you took out multiple loans and you are still looking for a job. Student loans have a grace period, often determined by the financial information you gave while you were in college, and they are structured on a ten-year repayment plan. The three main types of student loans (Stafford, PLUS, and Perkins) all have different interest rates. If you can’t keep up with multiple payment amounts and interest rates, you can try consolidating your student loans.
With federal student loan consolidation, you can merge your Stafford, PLUS, and Perkins loans into one account. The interest rate on this new loan will be the weighted average of all your former student loans. (PLUS loans are currently at 7.9%, Perkins loans are at 5%, and Stafford loans may vary up to 6.8%.) Your new consolidated loan will be weighted according to the amounts of your former loans. Therefore, if your loans were primarily Perkins loans, your consolidated loan should have an interest rate close to 5%. If the total amount of the loan was mostly PLUS loans, your interest rate will be a bit higher. In any case, the new loan should have a rate no higher than 8.25%.
With a student loan bill consolidation, you have multiple options for the payment plan. The first option is the standard amortized payment plan, whereby you make a minimum monthly payment over the course of ten years. You could also go with a graduated repayment plan, where you start with small monthly payments and the payments will increase in amount toward the end of the loan period. Finally, you could go with an extended repayment plan, where the length of the term can be extended up to 30 years.
Of course, whichever payment plan depends on what works best for you. The standard plan is best for those who like to stick with a structured schedule. You could also save a bit on interest by paying more than the minimum, which will shorten the time period of the repayment plan, even if you pay more than the minimum amount just once. A graduated plan would work if you foresee financial security in your near future. An extended plan would be good for you if you need to handle a smaller monthly amount, but just be aware that you will be paying more in interest because of the longer term. Whatever consolidation plan you choose, do so out of necessity. Make your payments on time, and you will be on track to pay for college years after your actual graduation.