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Tips for consolidation of student loans

Updated on July 4, 2011

WHY A STUDENT LOAN DEBT CONSOLIDATION?

Many who just graduated from college have a huge financial burden in paying back student loans.  Add in car payments, rent, food, and utilities, the financial weight can be stressing.

It's a good idea to examine options that could help relieve some of our financial burdens. In this article, it's about the student loans. More specifically, it's about private or federal student loan consolidation.

In order for colleges and universities to secure loans for a qualified student, they had to use several sources. One bank does not typically issue an entire 4-year loan or even a 1-year loan. Usually, it takes multiple banks or educational lenders to pay for a student through college.

That is why you're writing several checks a month when paying student loans. Of course, these loans carry with it different interest rates and different billing cycles. They may also have different borrowers benefits.

You don't have to be in a financial trouble in order to consider a private or government student loan consolidation. Sometimes, it's just smart money management.

PROS: WHY A STUDENT LOAN DEBT CONSOLIDATION IS RIGHT FOR YOU

Besides the simplicity of a single check, there are other good reasons that you should consider:

  • Lower interest rates.  When a student loan consolidation rate is lower than the average interest rate of your multiple loans, you may end up with a lower monthly payment.
  • Better incentives.  A new lender may have more attractive student loan consolidation incentives than what you currently have such as rebates or last month free.

Sadly, a borrower may have to consolidate in order to avoid defaulting in any of his/her existing student loans. When consolidating, the borrower is getting a new loan that pays off the existing loans. By doing so, the loan that is about to default gets paid off and is assumed as part of a new, but bigger, loan. By consolidating timely, that borrower avoids a very bad mark in his/her credit report.

CONS: WHY A STUDENT LOAN CONSOLIDATION PROGRAM IS NOT RIGHT FOR YOU

Just as there are good reasons for student loan debt consolidation, there are drawbacks that you must consider before speaking to a smooth talking consolidation counselor.

In fact, if there's one thing that you should remember from this article, then it should be this passage. Just because someone shows you a lower monthly payment, it doesn't mean that you're saving money. The big picture could be the opposite. Because in order to get a lower monthly, the length of repayment may have been extended. So that your loan payment period is now 30 years instead of 10. Longer payment means higher cost of the loan.

Also, some programs that may be advertised as "low interest student loan consolidation" may not have a forbearance or forgiveness provisions. These provisions can be helpful in situations when you need relief. Lastly, if there are any existing borrowers bonus, such as rebates, you may lose it.

SHOP FOR THE BEST STUDENT LOAN CONSOLIDATION PROGRAM

A good student loan consolidation program can save you money and ease your monthly financial burden. But keep this in mind, the best student loan consolidation is the one that's custom-made for you because your situation is different from the next borrower.

Just like any financial products, you must shop. There are a number of online sites that let you compare student loan consolidation programs. The good ones list the banks, their rates, and the provisions. Use these sites as tools to your advantage.

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