The Payoff of Student Loan Consolidation.

By: Thomas Hunter

Consolidating your student loans is one of the smartest and easiest things you can do to reduce your student debt burden, provided you research your options carefully. Why consolidate your student loans? A student consolidation loan allows you to combine your federal student loans into a single loan with one monthly payment, which is usually lower than the payment required under the standard 10-year repayment option. Consolidating can allow you to lock in some of the lowest fixed interest rates in recent history. Consolidating also allows you to make lower monthly payments. In some cases, consolidating your student loan can also qualify you for new or renewed deferments.

Most student consolidation loans have fixed interest rates that are based on the interest rates of the loans being consolidated. Studies have found that the amount you save by consolidating student loans can be very significant—up to 58 percent, according to some figures. What kind of student debt can be consolidated? Most federal aid, such as Federal Stafford loans, Federal Direct Loans, Federal Perkins loans, and many other types of student loans, qualify for consolidation. Many federal loans already have low fixed interest rates.

Before you proceed with consolidation, make certain the rate on your consolidated loan will indeed be lower than your current rate. The whole point of consolidation, after all, is to try to make the process of paying student debt easier, and hopefully, to pay less overall. Although consolidation can simplify loan repayment significantly and it does indeed lower your monthly payment, it also can increase the total cost of your student debt. Student loan consolidation provides lower monthly payments by giving the borrower up to 30 years to repay their loans. Thus, you'll be making more payments and pay more in interest. If you don't necessarily need monthly payment relief, you should compare the cost of repaying your unconsolidated loans against the cost of repaying a consolidation loan.

If you decide to proceed with consolidating your student loans, you’ll find the process to be very flexible. Whether you are a graduating senior, or have been paying off student loans for years, consolidation is always available. To complete your student loan consolidation, you’ll need to gather information about your current loan(s). You’ll need to know the balances and interest rates of all your student loans, the names and addresses of the companies that hold your loans and the names and addresses of two personal references. If you don’t have this information readily available, the National Student Loan Data System (NSLDS) is a wonderful resource you can contact. The NSLDS holds the most complete and accurate information of federal loans.

Most student loan consolidation plans give you two options for paying back. In the first option, you are responsible for paying a standard amount each month. Payments include both principle and balance. This method of repayment results in the lowest cost of interest paid. The other student loan consolidation payment method is known as graduated repayment. In graduated repayment, the repayment process initially begins with low monthly payments that cover the interest only. Later, the monthly payment amount increases, and the principal is included in the amount paid.

Most repayment of student consolidation loans begins within 60 days of the disbursement of the loan. The payback term ranges from 10 to 30 years, depending on the amount of student debt being repaid and the repayment plan that has been chosen.

Before you decide on a student consolidation loan, be sure to ask a few key questions of your lender. Does the lender offer an assortment of plans for every income level and your specific needs? Does the lender provide any kind of interest-rate reduction, such as reductions for making payment online or on time? Does the lender demonstrate flexibility in customizing a loan to meet your specific circumstances? Does the lending company provide adequate customer service, with real-life representatives readily accessible? Do they offer the best interest rate out there? You should be able to answer all of these questions satisfactorily before going with a specific lender.

Although most individuals who seek out a student loan consolidation program have graduated already, you can also get a consolidation loan while you're in school. You must, however, be enrolled at least half time.

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