Student Loan Consolidation
Student loan consolidation is an increasingly common choice for students emerging from higher education institutions. Because graduating students are at such a precarious time of life - either looking for work for the first time or considering the next big step - it is important to understand what student loan consolidation can do to create a financially sound future.
There are two main types of student loans: federal and private. Federal student loans are the most common of the two. Some of their benefits include interest rates that are set by the government and a guaranteed qualification for almost all students, regardless of individual credit scores.
However, federal loans typically stack on top of one another, making repayment options difficult. For example, many students get both subsidized and unsubsidized federal student loans. While subsidized loans don't start accruing interest until after a post-graduation grace period, unsubsidized loans start accruing interest right away.
The interest rates for federal student loans used to be incredibly low, but recent economic conditions have altered this. Most federal student loan borrowers can expect rates to increase as the years pass.
Private Student Loans:
Private student loans are available to those who need to extend above and
beyond the relatively low annual cap on federal loans. Schools and private
financial institutions offer a number of options with varying levels of
interest rates, grace periods, and repayment plans.
Because all lenders and schools are different, students with private student loans may find themselves with high interest rates or several monthly due dates for their varying loans.
Why Consolidate?
Consolidating student loans can mean the difference between being able to
make student loan payments and falling behind, which can result in accrued
debt, higher interest rates, and late penalties. Some of the additional
benefits of student loan consolidation include:
Many private loans and some federal loans start charging interest right away - even if students still in school or in a grace period. Some consolidation options help to defer payments until after graduation.
Student loan consolidation can save money. High interest rates or variable rates can be refinanced into a single, locked rate.
Payments are much easier. Many students have a number of loans from several federal and private of providers. Student loan consolidation combines all the bills into one easy monthly payment.
Many lenders provide discount options. Borrowers who make automatic payments, pay on time over a set period, and otherwise qualify may find that they are eligible for bonuses or rate reductions.
When used correctly, student loan consolidations can be a great way to start out on a sound financial footing as students transfer from the collegiate world to the working community.
