Benefits of Consolidating Student Loans

Rehabilitation is a federal repayment program provided to the student loan holders, who have defaulted on their loans. In order to rehabilitate your loan, you have to provide twelve on-time monthly payments in a row. Once you have given twelve on-time payments, you are eligible to apply for rehabilitation.

The government can agree to insure your loan once again and then your guaranty agency can sell it to a secondary market or lender, thereby taking off your student loan from default status. Once you have got your loan rehabilitated, you have a span of around nine more years to repay it. A defaulted student loan can be rehabilitated only once.

Sometimes you might face some errors or problems in your student loan record keeping. Various errors that can occur in student loan recordkeeping are:

• An incorrect balance,
• Not credited payments,
• Incorrect interest rate,
• Incorrect personal information, or
• Other errors

Then immediately make it a point to contact the agency that holds your loan. If you are not able to resolve the issue on your own then urgently contact the Federal Student Aid department.

The kind of decisions you make about repaying your student loan can significantly impact your finances and future planning. Hence, it is advisable to properly research your options and ensure that you will reach your target without getting into any troubles, before you decide for consolidating student loan.

There are number of possible advantages in consolidating your student loans. However, you can always check your options and figure out whether you want to go for it or not.

Advantages of consolidating student loan:

1) If you have many loans, you may want to consolidate them once you have graduated, so that your record keeping and bill payment processes are simplified.

2) You can also avail the advantage of lower interest rates, or the longer repayment period you'd get after consolidation.

3) Consolidating can be a beneficial option for you, if you have taken a heavy education loan and want to lock it in at a fixed rate.

4) Another way consolidating can benefit you is when you want to reduce your monthly payments and want to pay more over the length of your loan in order to do so.

5) Student loan consolidation has other benefits. For instance, if a student passes away, her/his student loan is forgiven. This is quite contrary to the fact that in a home equity loan, if the loan holder passes away, the person's family would still have to cover the balance of the home equity loan.

A survey conducted by Collegiate Funding services figured out that more than half (54%) of the student loan holders surveyed were unknown of the Federal Consolidation Loan program, a program enacted by Congress to make repaying federal student loans more affordable.

Under the Federal Consolidation loan program, if you hold a debt of $7500, or more in eligible federal student loans and none of your loans are defaulted, then

• You can consolidate your loans at a fixed interest rate with only one payment per month.
• The interest rate on consolidation loan is an average of the interest rates on all your student loans, not to exceed 8.25 percent, so you may get advantage from locking in when market interest rates are very low.
• It can save you thousands of dollars over the life of your loans, depending on how much you owe.

The federal program also enables you to prolong the term of the loan up to 30 years. Obviously, a loan period this long would make you pay more because of the interest, but the advantage is that there are no prepayment penalties, so you can always pay more or pay the loan off early as and when needed.

Tip: Always use an online calculator to calculate the true cost over time, before you decide to extend your loan repayment period.

You can consolidate all your debts with one lender at any time, without a consolidation loan if you only want to make your payment process more simplified and easy going. If you aim for the lower interest rate, remember that only after making forty eight consecutive on-time payments, you will be able to get interest rate reduction.

This may help you in getting a lower rate without consolidating student loan, than you could get by consolidating, depending on your current interest rate.