A student may have taken several federal and private loans in order to complete different courses in his/her educational life. When the student graduates, paying these loans back becomes a very tedious and burdensome process. This is when the student contemplates consolidating the loans. Consolidation is the process of blending all the loans into a single loan, with a single rate of interest. The rate of interest on a consolidated loan is generally lower than the rates of interest of all the original loans. After consolidating, the student will have to pay only one loan back, with just only payment to make every month. The biggest advantage is, that monthly payment would be significantly lesser than all the earlier payments combined.
The rates of interest on student consolidated loans are the most important factors to be considered. If statistics are any indication, then students must be saving 58% on their total loans by getting them consolidated. The rate needs to be thought out in advance. The student should carefully scrutinize the market and lock in the rate when it is at the lowest to get the maximum benefits.
Almost all kinds of Student Loans can be consolidated. All federal loans such as federal Stafford loans, federal direct loans, and federal Perkins loans are eligible to be consolidated. Federal loans already have low rates of interest; with consolidation these rates would fall still further.
But consolidation is not always a moneysaving process. There are several factors to be taken into account. Just if the rate is low on the consolidated loan, it does not mean that the total indebtedness of the student would decrease. There will be additional charges to pay when consolidating. The student must be vigilant that these charges don’t make the consolidated loan actually higher in amount than the total loans owed before. Also, consolidated loans are spread over longer periods of time than the original loans. This would mean the student will end up paying more interest in the longer run. Hence, the student must make a comparison of the unconsolidated and the consolidated loans before taking the step.
The process of consolidation is made simple enough for students to understand. There are also flexible options. Loans can be consolidated at any point of the student life or even later. Information about all the loans would be needed for the consolidation, such as the total amounts owed, the rates of interest, the periods of the loans, and the names and addresses of the providers of the loan. This information is available on the National Student Loan Data System (NSLDS) if the student does have it offhand.
There are two repayment options on student consolidated loans. In the first option, the student makes a particular payment each month, which includes both the principal and the interest. The interest rate is the lowest with this option. In the other option, the repayment begins with a low amount and then increases gradually, commensurate with the student’s growth in his/her career. Here the rate of interest would not be fixed. Earlier payments would have only the interest, but later payments would have a major share of the principal to be paid back.
Consolidated loans give a dormancy period of two months, after which repayment needs to begin. These repayment terms could last from 10 to 30 years, depending on the total amount of student debt and the repayment plan selected.
It is necessary to obtain all information about the lender before going ahead with the consolidation process. The lender should be flexible enough in the repayment plans or again the student would be stuck with an unrealistic repayment pattern. The reduction in the rate of interest must be significant enough to ease the burden. Customer service is another important part of the consolidation, since students are generally unaware or too busy to be bothered with loan aspects.
A little known aspect of student loan consolidation is that it can be got even when the student is in school. The students who are enrolled for at least a halftime course are eligible.
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