How to Consolidate Student Loans

By | March 22, 2013

One of the most discussed topics nowadays, especially among fresh graduates, is student loan consolidation. Having incurred multiple loans that financed their college studies and cost of living, many graduates have been experiencing sleepless nights. Even after having a half year period without payments, how can they handle student loan payments when they still have not even found a job? It is hard enough just with the pressure of applying for jobs with the all the uncertainties and financial problems that the world is dealing with right now. With multiple payments due every month it would be like hitting your head against a brick wall. So, what is a student loan consolidation? It means combining several student loans into a more simplified loan. With this new loan, the only requirement is that you make one payment every month basing on one fixed interest rate. The interest rate will not change for the entire duration of the loan. If you consolidate several student loans, it could make handling your finances a lot easier.

With two or three loans, it is quite difficult to maintain the paper statements and payments that need to be done. Monthly payments are also stretched with a longer period of time for repayment. Most loan options will give you several payment schedules that can last for as little as 4-5 years or be extended for up to three decades to pay off the loan. The longer pay schedule should definitely not be your first option. A longer repayment period would also mean a smaller monthly amount to pay. If you have not yet found a regular well-paying job, the smallest amount to be paid would not be so difficult. On the other hand, if you are not having a problem paying your student loans as they are and have maintained an up to date payment record, a student loan consolidation may not be what you need.

The Cost of Student Loans

Before making a final decision to consolidate your loans, you have to do some research first. As you do your research, you will find that many consolidating options are offered by banks but ultimately the potential profit for them is why they do it.

You should seek to assess which lending institution can provide you with an interest rate the is competitive and allow you to save thousands of dollars in the end. You will be paying a lower monthly amount through a longer repayment schedule of 20 or 30 years, in the future this also means having to pay extra thousands or ten thousands more in interest plus the principal amount of the loan. This can add up over time to amount to many dollars out of your pocket.

Getting a lower interest rate can also save you extra cost. What you can do is to visit banks or institutions personally to learn more about their interest rates and repayment periods. Most government loans can be consolidated. You will have the advantage of a lower interest rate when you consolidate while you are still a student or when you consolidate within the 6-month grace period.

Do not forget that you will only be allowed to perform this type of consolidation once. Before deciding where or when, you have to really study your options. Take into consideration if the institution offers you an automatic debt plan that can reduce your interest rate by another quarter point. For example, if you have been paying your loan regularly and promptly for 36 months, the lending company may slash your interest payment for almost another one percent. That can save you money too.

Most importantly, student loan consolidation does not charge prepayment fees. With an increasing salary, consider it best to pay off your student loan early rather than to wait for the next 20 or 30 years to be free from it. This can leave more money in your pocket and you won’t have to be burdened with this responsibility for so many years.

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