The How And Why Of Student Loan Consolidation

by Bernard Pruett - Date: 2007-04-04 - Word Count: 858 Share This!

Borrowing money to attend college these days is not unusual. Thankfully, the United States Government has made doing so easier than ever. For a number of decades, the government has been offering financial aid to those in need through the Free Application for Federal School Aid (FAFSA) program. The majority of aid from this source comes in the form of student loans. Since many students have had to take out several different loans over the course of their college career, they may be faced with a variety of different payments and due dates when the time comes to begin repayment. For this reason, many borrowers have turned their attention to student loan consolidation programs.

A student loan consolidation program may not seem important to many new graduates. After all, repayment on the loans doesn't begin until 6 months after graduation. This gives the borrower half a year to find steady employment to help them afford these payments. However, this plan does not work out for everyone; in these cases, student loan consolidation may be needed.

Many students intend to begin their careers upon graduation. With today's economy, that plan may not be realistic. After graduation, many students find that they must settle for internships or have to begin their careers in an entry-level position. These types of jobs rarely pay well. The lucky few who do land a job in their chosen career field may still find it difficult to afford their monthly bills. In any of these situations, a student loan consolidation can be very beneficial to a recent graduate.

Before considering a student loan consolidation program, it is important that the borrower understand what consolidation entails. When a student applies for financial aid, they may receive various types of loans; each loan will be for a different amount and may have a different interest rate. Since students apply for financial aid on an annual basis, the number of loans (as well as the types of loans) they accept may vary. This can complicate matters when repayment begins since the borrower may have to juggle three or more student loan bills along with their monthly living expenses.

Student loan consolidation can help simplify the repayment of student loans. When student loans are transferred to a new lender, all debts that the borrower owes are combined into one amount. Student loan consolidation means that a student will only have to focus on one debt as opposed to three or four. The borrower owes one amount on one due date every month.

In addition, student loan consolidation can also save the borrower money. When the government is the lender, the interest rate on each loan is variable, meaning it is likely to increase each year. With student loan consolidation, the interest rate is fixed. Sometimes this rate can be lower than the original government loans, because it is figured through a weighted average. In other words, the lender will average all the interest rates from the separate loans together to come up with the new loan's interest rate. This can result in the borrower saving thousands of dollars over the term of his or her repayment.

Another benefit to student loan consolidation involves the payment of monthly bills. Student loan consolidation is beneficial in that it can decrease monthly debt. The total amount the borrower owes is the same; however, the amount that the borrower must pay each month can decrease dramatically with consolidation.

If a borrower chooses to approach a private lender about student loan consolidation, it is important that he/she understand how the monthly minimum payments work. The amount owed per month maybe low, which could give the borrower more money to work with on a monthly basis.

However, the drawback is that if the monthly minimum payment is low, the amount of time needed to pay off the debt will increase. Since the interest for student loan consolidation is constantly accruing, this means that the borrower may end up paying more money in the long run.

In any event, it is much better to make lower payments for a longer period of time, than to keep a higher payment and not be able to pay the bill. Missed or late payments on any debt can easily result in a bad credit report and a deteriorating credit rating over time. This should be avoided at all costs, as less than perfect credit could stand in the way of future loans.

Additionally, there are no early payment penalties on student loan consolidations. A borrower can always pay more than the minimum payment without being penalized. Making extra payments when possible is always a good idea because the principal balance will be reduced. This leads to a reduced amount of interest accruing on the loan, which over time can save the borrower hundreds of dollars.

Student loan consolidation is an excellent idea for anyone faced with making payments on multiple student loans. There are several different repayment options available and no fees to apply. A good lender will help determine the best plan for each situation. The benefits are numerous and the drawbacks are few. Sometimes things aren't too good to be true; this could be one of those things.

Related Tags: student loan consolidation, consolidate student loan, bad credit student loan, college loan consolidation, student loan financial aid

Bernard Pruett teaches people about personal finances and consumer debt for Find out more information about student loan consolidation and other student loan financial aid advice and help. Reprint this article with links intact.

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