How To Consolidate Student Loans?

Often times, when you take out a student loan in college, you never realize that at some point you will have to pay it back. That reality seems so far away. So when the time comes, it can not only be startling, but also feel impossible to actually do. If you are someone who had little financial support in school, it is not uncommon that you would have taken out every loan that you could while they were available. Then when payback time arrives, you realize you may have to pay anywhere from $400 to $1000 per month in loans – and the repayment terms could last for up to 30 years. For those with this type of future ahead of them, student loan consolidation is a very welcome option. This is because you are able to combine all of your loans into one little neat package, to avoid having to keep up with several repayment schedules. There are other benefits to student loan consolidation that we will explore in this article so that hopefully, by the end, you will be able to look at resources that will make your loan repayment plan much easier.

Federal student loan consolidation is an assistance program set up by the United States Government to help assist those who have multiple loans that they are in the process of trying to repay. For example, if you have taken out a Federal Stafford Loan and a Federal Perkins Loan, and you have now graduated, you have a grace period of typically six months and then you will be responsible for paying back your loans. This becomes a problem for those who have not acquired a job that is able to cover the cost of the monthly repayment schedule.

Many find that when they pay their loans separately, they can easily add up to the equivalent of a generous car note or mortgage rather quickly, so student loan consolidation was created to kill more than one bird with one stone. Of course, with student loan consolidation, you don’t have the burden of timing your paycheck with your loan payments, or worry about fumbling with all of the payment booklets. But you also normally receive a much lower monthly payment through consolidation, often times up to 50% less, than through standard repayment – not bad! The one drawback is that you will probably have a longer repayment term than you would have with one or both of the loans, so you have to decide if this detail makes it worth it.

Also, though you typically have a fixed interest rate throughout the term of the loan, your interest rate will most likely be significantly higher than that of your standard loan repayment. This means that you could end up paying up to double the amount of your actual loan amount by time the loan term is completed. If this is not a concern for you, as it is not for many, then you are on the right track with student loan consolidation.

Some of the top student loan consolidation companies are Sallie Mae, Citibank, Nelnet, and the Federal Direct Student Loan Program. All of these companies and programs arranged over 100,000 student loan consolidations in 2006 and are looking to help more students adjust their financial situation to better suit their present economic status.

I bet you’re wondering how it is possible that these companies are able to consolidate your loans for you. Well student loan consolidation is very similar to any other type of debt consolidation. The above-mentioned companies, and others like them, pay off all your loans with the companies that you were originally working with and create a separate package. So the good thing is that you no longer owe the original companies owed, which can, in a sense, clean up some of your credit report. However, you now owe a brand new company and have new debt with a new interest rate and new repayment term.

When consolidating your loans, take into consideration the types of loans you’re consolidating. As mentioned before, many loans are taken out through the federal government, but then there are also private institutions and organizations that give out loans. When consolidating, it is always advised that if you have both private and federal loans to pay back that you start by consolidating the federal loans then later consolidate the private loans separately. This is because federal loans include a lower interest rate (which is federally governed) and allow you to increase your repayment term to 30 years, which reduce your monthly payments.

Private loan consolidation through companies like Sallie Mae or Citibank are not controlled through a government mandate, which means the interest rates are likely to be higher. Also, you may not be eligible for the longer-term repayment schedule, which is a vital detail for some. However, many private consolidation companies offer “sign-on bonuses” which normally equate to you being able to cash a check of several hundred dollars in return for consolidating with them. When making a decision on how to consolidate and with whom, always take everything into consideration because your commitment will most likely be a lengthy one.

As you need to do with any decision that requires you to spend your money or may affect your credit, you must look at all of the options available and weigh them seriously – and student loan consolidation is no exception. Consolidating your loans can definitely help you lower your month-to-month expenditures, which is great for short-term considerations. But when you begin to plan your long-term monetary goals, and add up your mortgage, car note, and any other long-term expenses, you must think wisely about the student loan consolidation program that will work best for you. It is very easy to think of what seems to the best decision that will affect the next few months, but once those months pass and you’ve reached the “next few years,” will you regret your choice? Avoid regret later by making the right choice now. Do your research – and good luck!

Jeffrey Meier at Jam727 Enterprises at http://www.thearticlehome.com blog offers even more detailed information on a wide variety of topics.

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