Consolidating student loans
The cost of education has increased immensely these days. Most people cannot afford the cost of pursuing good quality education. They need to have a good amount of money at hand to undergo various expenditures incurred during this phase. In the recent days, public and private sector banks and other private financial institutions have come to the aid of students wishing to attain first-rate education by giving them loans for this purpose. As the cost of education keeps rising, the loans taken by students also rise proportionally.
Most students who procure loans to pursue education are faced with another major problem. While undergoing education, students cannot suffice with merely one student loan and are hence forced to take a number of loans to meet various expenses. In order to pay back all these loans they are under pressure to fare extremely well in their class and acquire a good high paying job. This builds up additional stress for the students during their educational phase. Also, when they are out of college and it is time to repay their student loans, it becomes a real burden and distracts them from achieving their career goals.
To solve this problem and make things easier for the students when they come out from college, the concept of student loan consolidation has been introduced.
What is meant by Consolidating Student Loans
The concept of student loan consolidation combines several student loans taken from different agencies, for different terms, and at different rates of interest into a bigger loan from a single lender. This bigger loan is used to pay off all the other smaller loans and the student needs to pay only a single monthly loan payment for the consolidated loan.
The advantage of student loan consolidation is that the student now has to disburse only a single loan payment every month instead of making several individual loan payments. The rate of interest of the consolidated student loan is much lesser than the individual student loans and it can be cleared over a longer duration of time like 10-25 years depending on the amount that the student has to repay. Student loan consolidation can be acquired by both the student and his parents who might have acquired the loan for him.
What are the types of Consolidating Student Loans available
Consolidation for student loans can be acquired either from the federal government directly or from the banks or credit unions that give student loans. The terms and conditions to acquire the student loan consolidation programs are similar with most financial institutions.
The federal government consolidates only for student loans acquired from the government institutions. They do not consolidate for loans received from banks, credit unions, personal loans and other consumer debt loans.
Student loan consolidation can also be obtained from private financial institutions. However, these require that the student has a fixed job and regular income to make the consolidated loan payments.
Information regarding student loan consolidation programs can also be obtained from the internet easily. There are a number of websites that provide latest information, resources, tools and data related to private and federal student loan consolidation programs.
Most students have found federal student consolidation loans to be more beneficial that those from private lenders.
What are the benefits of student loan consolidation
a. Most financial institutions consolidate even loans of small amounts. They do not have a minimum loan balance requirement in most cases.
b. Depending on the student loan to be repaid and with the choice of a correct lender, the monthly payment for consolidated loans comes down by nearly 50% when compared to individual monthly loan payments.
c. Instead of writing multiple cheques to several lenders every month, the student now has to write only a single cheque.
d. The interest rate on the consolidated student loan remains constant for the term of loan repayment. With regular monthly payments, the interest rate can be brought down, which is beneficial to the student.
e. The term of the consolidated student loans can be extended up to 30 years. This gives you some time for your career to take off.
f. It helps relieve stress for the student as he need not worry about multiple student loan payments and due dates for each of these payments separately every month.
g. Consolidated loan monthly payments can be done either directly from your bank account electronically. Some lenders provide discount on interest rate for payments made electronically.
The other notable advantage of consolidated student loans is that they have no fees, charges or prepayment penalties. While other loans require checking your credit balance, student consolidation loans can be obtained with no such checks. Also, there is no need for any co-signers to guarantee loan repayment.
What is the correct time to consolidate student loans
Most private or government institutions give you a grace period of 6 months during which you have to find a suitable job and make arrangements to make the monthly student loan payments.
Most students make arrangements for loan consolidation at the middle of the 5th month of the grace period. As the process of loan consolidation takes about a month to 45 days, the student can avail the complete grace period and also shell out low payments every month towards the consolidated loan after the expiry of grace period. The important point to note is that consolidating your student loans during your grace period helps in obtaining a lower rate of interest than consolidating it after getting a job.
The maximum interest for consolidated student loans is set at 8.25 percent. Hence, no matter how high the individual loan rates may be, you need not pay more than 8.25% interest for the consolidated loan.
However, it will not be good idea to consolidate your student loans if you are close to repaying them. It is also not advisable to consolidate your loans along with those of your husband/wife as it increases the amount to be repaid and makes both of you responsible for its repayment.
So every student must study all the consolidation plans available and pick the one which gives him maximum benefit in terms of low interest rate and term of repayment. It must help him focus on his career rather than being worried about monthly loan payments.
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