Student Loan Consolidation
Consolidation, also called a Student Consolidation Loan, combines
several student or parent loans into one bigger loan from a single
lender, which is then used to pay off the balances on the other
loans. Consolidation loans are available for most federal loans
The reduced monthly payment may make the loan easier to repay for
some borrowers. However, by extending the term of a loan the total
amount of interest paid is increased. For e.g.:- (when one or more
of the loans have to be repaid in less than 10 years because of
minimum payment requirements), a Student consolidation loan may
decrease the monthly payment without extending the overall loan
term beyond 10 years.
Student consolidation loans can help with many bills and reduce
payments into one low monthly payment. Before deciding which step
to take it is important to learn what the company is offering and
what bills can be included in the consolidation loan. The interest
rate on Student consolidated loan is calculated by taking the
average of the loans which are being consolidated.
Consolidation simplifies the repayment process but does involve a
slight increase in the interest rate. Students who are having
trouble making their payments should consider some of the
alternate repayment terms provided for federal loans.
All unsecured debt such as collection agency debts, personal
loans, medical bills, credit card debt, and student loans can be
included in a consolidation loan. A consolidation loan gives you
one monthly payment instead of several.
College graduates could be looking at a significant increase in
the interest rates they pay on federal student loans if they don't
consolidate their student loans. The US government sets the rates
for all federal student loans based on the 91-day Treasury Bill
(T-bill) rate at the end of May of each calendar year. The rates
are then fixed for the year, becoming effective July 1, and affect
all non-consolidated student loans.
Graduates and students graduating should consolidate as soon as
they are out of school. Locking in current rates can save
thousands of dollars.
A student consolidation loan combines several federal student or
parent loans into a single larger loan. Most federal loans can be
consolidated: Stafford, PLUS (Parent Loans to Undergraduate
Students), Supplemental, Direct, Perkins and others.
Downsides to consolidation
The most obvious downside is that even though your payments are
smaller, you are extending them over a longer time. That means
you'll pay out more total interest. Also, as with any kind of
consolidation loan, the borrower may be tempted to spend more or
even borrow more because of the smaller loan payments. Then you're
just piling up more debt than if you hadn't consolidated.