Consolidating Student Loan

An Introduction to Student Loan Consolidation

As you graduate and start to think about paying off your student loans, you first need to realize that you have options. One of them is referred to as loan consolidation, which, you may discover makes perfect sense for your financial situation. Or, after checking out the pros and cons, and examining your future career and life plans, loan consolidation may not be right for you at this point. The important thing, however, is that you are thinking about your future, comparing the different types of consolidation options available, and determining what makes sense for you. Given the time, work and money you've put into your education, this is a smart move.

What is Consolidation?

Though the loan consolidation process and its terminology can be complex and confusing, the basic concept is easy to understand: You take all of your outstanding federal student loans (even if it's just one loan) and bundle them into one new student loan with one monthly payment. The new rate is fixed-meaning it won't change-and the length of the loan can be extended all the way up to 30 years, which can lower the amount of your monthly payments. It's a kind of refinancing of your federal student loans.

The stress and hassle of having multiple student loans have led many to seek out student loan consolidation. The process can be a bit confusing so here are a few things to remember.

Identify which type of loan you have.

The type of loan you have, federal or private, will determine what type of interest rate you will receive should you choose to consolidate. Federal loans have government backing so they usually carry a lower interest than an unsecured private loan. Because of these differences, never consolidate the two types of loans together; you could be cheating yourself out of the lowest possible interest rate and would be losing the benefits that each loan has to offer. If you have both federal and private loans consolidate the loans by type.

Understand the Timeline

Consolidation of your federal loans cannot begin unless you are actively repaying your loan, are in the “grace” period, or have dropped below half-time status. For private loans you may not have these stipulations. Know where you stand in this regard so you can get started with consolidation as soon as possible.

You Only Get One Shot at the Rate.

The interest rate you have when you first consolidate your student loan is the rate you keep. If in the future you refinance because of cleared loans the rate will stay the same.

If you have a considerable amount of loan debt, consolidation may be for you. Streamlining your school debt through student loan consolidation can save you time and money.


Why might I consolidate?

The main reasons to consider student loan consolidation are:

• Potential for lower monthly payments
• Fixed interest rate
• Only write one check for various loans
• Potentially flexible payments during hard times

Depending on your circumstances, these may or may not be that interesting to you. If you’re not worried about rising interest rates, for example, then you might not care about getting a fixed rate. Likewise, if you’re making your payments without any difficulty, you might have no need for lower payments.

Source: Justin Pritchard,About.com; ABC Loan Guide; SimpleTuition