What Is The Best Way To Consolidate Student Loans?

What Is Student Loan Consolidation?

Consolidating your loans can be very confusing. There are many questions you need to ask and to have answered before proceeding with this endeavor. In a lump sum it can sound terrific, yet you need to know more about the full puzzle to be sure.

Loan consolidation is when one vendor, who opens a new loan, pays off several different loans. This new loan allows you to pay just one bill instead of several different loans, maybe from several different lenders. There are benefits to consolidating debt, but there can be drawbacks also.

Depending on your own situation, you will need to discover whether consolidating loans or keeping loans separate is the best for you. Indeed it is great to have the benefit of paying one monthly bill and knowing that your debt is through one financial lender.

The monthly payment is usually much lower on consolidated loans than individual loans. They will take all of your loans, refigure them as a new loan package and then you will be offered different options on how fast you want to pay them back.

The flip side of this is that if you have private lenders for your loans, you will not be able to consolidate your loans through federal consolidation. There are some private consolidation lenders you may want to look into. Keep in mind that they are not held to the same regulations that federal loan consolidation programs are by law.

How To Consolidate Your Student Loans

To consolidate your loans, log on to FinAid for an extensive listing of banks that can provide information, and set up, your consolidated loans. You will need to fill out a little information on yourself and then the financial institution of your choice will handle the rest of the work. Make sure all of your information and records are accurate.

You may only consolidate once, so if rates do go down you will be stuck with your current rate. However, with loan consolidation you generally get a lower fixed rate for your consolidated loans than on individual loans. A fixed rate means that they won’t increase your rate later on as inflation rises. This works in your favor, since rates tend to increase as time goes on.

Tips You Should Know Before Loan Consolidation

Students should only consolidate variable rate loans (for example, Stafford Loans), not fixed-rate loans like Perkins loans. Because Perkins loans are fixed rate, there is no financial benefit and you may lose some loan forgiveness provisions.

Student loan consolidation programs are not the same among lenders, with varying interest rates, grace periods, penalties for late payments, time for loan repayment, and other incentive and discounts. So, it’s best to shop around!

Although consolidation lowers monthly payments, it also means more interest will be accrued over the life of the loan and significantly increase the loans total cost. To best reap the benefits of consolidation, try to make the same monthly payments and pay the loan ahead of time.

To lower total interest rates and cost of your loan, you may not want to consolidate all of your student loans (for example, you may choose to include only unsubsidized loans or exclude a high interest loan with a low balance.) Check with your lender which options would be best for you.