Best Way to Consolidate Student Loans

best-way-to-consolidate-student-loans

Best way to consolidate student loans

If you have just graduated from college, the likelihood is that you are under a large amount of debt in the form of student loans.  You might be wondering if there is any way to reduce the amount you have to pay.  One solution for reducing your debt is to consolidate your student loans.

Another important thing is how much do you know about consolidating student loans, do you have an idea what it actually is? There are many advantages but can be disadvantages also to consolidate student loans. You will some answers to your doubts in this article. Just go ahead and read on.

Student loan consolidation is similar to refinancing a house on better terms:   although the principal of the loan will not be affected, the interest rates you can lock in when you consolidate student loans to a fixed rate can be substantially better, reducing your monthly payments by up to forty percent.  Plus, you might be able to stretch out your payment time to reduce your monthly payment amount even further.

 

How to Consolidate Student Loans

 

You will first of all like to know how student consolidation loan works. The answer is very straightforward. Once you have graduated from college you will have to start repaying all your student loans. When you move to consolidate student loan that is in other words you will add up all the loans you have taken from all different places, as one single loan and will have to pay to one lender only and that to at a low interest rate and you may get more time to pay up also. By consolidation of student loans, you will be able to repay your college loan with ease and little tension.  Maybe this can also save hundreds of dollars for you in the long run.

 

There are advantages as well as disadvantages in every situation and it goes without saying that it applies when you consolidate student loan also.

The disadvantage when you consolidate student loans during your initial six-month grace period is that you must start making your payments right away.  This can be difficult if you have not found a job after graduation, although you can wait until just before the grace period ends to consolidate, and still receive the lower rates.  But to overcome this there is a good strategy of consolidating student loans almost at the end of the grace period to take advantage of both. You can discuss this issue with your lender.

It is also very possible to extend the repayment time when you go for student consolidation loans. The repayment period can be extended up to a period of thirty years! But that primarily depends on your entire education loan debt. As a result your monthly payment sum will noticeably go down. This has its own drawback as the longer you take to repay your loan the more you will have to shell out. It’s entirely your own choice and also the situation you are in.

Furthermore, once you have consolidated your student loans, you cannot un-consolidate them again, so make sure to consider your choice carefully.

How to Consolidate Student Loans

How is Interest Calculated When I Consolidate Student Loans?

 

When you consolidate student loans, your lending company pays off your government loan and issues you a new loan under its own name.  The typical way to determine the interest rate on the new loan is to take the average interest rates on all of the student loans, and offer a new rate that is an eighth of a percentage point higher (up to a maximum interest rate of 8.25%).  Although agreeing to a higher interest rate might not sound like a good reason to consolidate student loans, this rate is fixed over the life of the loan, whereas the government rates will fluctuate.  Since rates are at an all-time low right now, locking in the current rates might be a good idea.  Furthermore, many banks give you ways to bring down the percentage rates.  For example, some lending institutions will drop the rate by as much as a quarter point if you agree to automatic deductions from a checking or savings account, whereas others drop the rates after a certain number of timely payments.  As an additional bonus, there is no penalty for paying off your consolidated loan early.

 

 

When Would You *Not* Want to Consolidate Student Loans?

Before you decide to consolidate student loans, you should carefully consider your alternatives.  For example, did you realize that it might be possible to have your student loan cancelled altogether?  Student loan forgiveness options include volunteering, for the Peace Corps for example, or working for the government in a low-income area as a teacher or doctor.  Cancellation is not possible, however, after you have consolidated your student loans.  If this kind of work interests you and is available, it could be a better option than loan consolidation.

Another time to hesitate before you choose to consolidate student loans is when you are close to finishing your payments.  Stepping up the payments and saving yourself some interest and the hassle of consolidation might be more advantageous to you.

Finally, there are loans that you might want to keep open because they offer special advantages.  For example, if you are considering going back to school and you have a Perkins loan, you would not want to consolidate that with your other student loans.  The government will pay all interest on Perkins loans while you are in school, but if you have chosen to consolidate student loans, you will not be able to receive this benefit.  You could always choose to leave any special kinds of loans out of the consolidation mix, however.

 

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