According to The College Board, an estimated 60 percent of bachelor's degree recipients obtain loans to fund education, with an average total debt of $22,700 for 2006-07 graduates. If you have student loan debt, paying off your loan(s) is crucial. Repayment affects your credit rating (both positively and negatively) and your credit rating can affect your ability to buy a car or even find a good place to live. Consolidating your student loans may be one way to help you repay your loan(s).
Like a home owner who refinances a mortgage, you can refinance or consolidate your student loans to lower your monthly payment or combine several loan payments into a single monthly payment. Keep in mind however, that consolidation loans use a weighted average interest rate, which may lower the interest rates on some of your loans and increase the interest rates on others. Also if you extend your repayment period, you'll end up paying more interest in the long run.
Student Loan Consolidation Services
Consolidating your student loan and lowering your monthly loan payments can give you more discretionary income each month. If your loans are almost paid in full, consolidation is not a good idea but it might be a good option if:
You are currently making multiple monthly payments or payments to different lenders
Your loan payments are high compared to your income
The interest rate on a consolidation loan is lower than the rate on your loan(s)
Because loan consolidation services are competing for your business, they offer inducements to consolidate your student loan debt with their company. They may offer lower interest rates when you automatically deduct payments from your checking account or when you apply for your loan online. Be sure to shop around to get the best deal.
If you have more than one outstanding student loan to service, there are a few things which you should consider if you are thinking of consolidating all your outstanding student loans:
Consolidation basically means the act of combining a few things together. One of the benefits of consolidation of student loans allows you to combine all your outstanding student loans into one single account. In such a scenario, you are looking at only having to manage the monitoring of one single loan account and one single monthly payment. The likelihood of missing out on your repayment due to having to monitor a few student loan accounts is thus minimised.
When you apply to consolidate your student loans, you might also gain the advantage of being able to negotiate for a better interest rate since the financier is now potentially looking at “grabbing” the loan business from its business rivals. For instance, let’s say you are servicing 3 student loans from 3 different financiers wherein the interest rates range between 8 to 13% per annum. You then approach a new financier and apply to transfer all these student loans into a new loan account with them. The new financier might be persuaded to give you a rate below 8% so as to conclude this lending business with you and thus, deprive the other 3 financiers from continuing their “interests profits” should you continue borrowing from them.
Another benefit of a consolidation loan is to renew student loan deferment rights. If you are out of college or university and are having difficulty servicing your monthly loan payments, a consolidation loan may give you a temporary relief.
As in all things, before embarking on the decision to consolidate your student loans, you should also consider the cost benefits. Discuss with your financiers to see if the cost of consolidating your student loans would be cheaper than maintaining status quo. Find out what are the hidden costs involved in consolidating student loans and whether such a consolidation would result in a longer repayment period. If at all the repayment period is extended, then make sure you calculate the overall amount of interests paid by the end of the tenure to see if you would be saving some money through this consolidation exercise.
