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| Student Loan Consolidation-The Good, Bad, and the |
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With tuition costs rising across the country, it has become increasingly
necessary for college students to take on debt in an effort to get their degree.
But student loan repayments are often difficult for students to make, especially
considering that early on graduates incomes are typically quite a bit lower then
their ultimate earning potential. Due to these circumstances, Student Loan
Consolidation is a valuable option for many recent college grads to pursue.
How Student Loan Consolidation Works
Student Loan consolidation
works like most consolidation programs. A single lender takes on the various
loans you have accumulated, like Stafford, Perkins, HEAL, NSL, and private
loans. While the terms and repayment conditions vary among these many different
lenders, a single loan consolidation company will pay off all these loans and
offer you a single, typically longer term, loan. What this means practically, is
that instead of having to pay off one loan in 3 years, another in 5, and another
in 10, or having one loan's interest rate be fixed and another variable, all
your loans are compiled under a single system. You can then negotiate with your
loan consolidation lender, about the terms of the loan. Typically, students opt
for a repayment plan of 10 to 30 years. Obviously, the longer the term of the
loan, the lower your monthly payment will be.
Why Consolidate?
Consolidating your student loans offers you the opportunity to stretch out
your payments, so as to take advantage of your future earning power. It is quite
reasonable for students to believe that they will earn more as their careers
progress, and by stretching out the length of their repayments, they won't have
to pay the most on their loan while their income is at its lowest point. Another
benefit of student loan consolidation programs is that they take a lot of the
confusion and problems out of student loan repayment. For recent graduates who
have loans from a variety of public and private lenders, keeping up with the
unique terms and conditions of every loan can often be a bit of a nuisance. For
these reasons consolidation is a very popular option. But that does not mean
that it is not without its costs.
Why Not Consolidate?
Loan
consolidation of any variety, is so appealing for lenders because they can
charge relatively high "consolidation" fees. While student loan consolidation is
regulated better than most forms, loan consolidation companies still manage to
add quite a bit to the principle of the loan (that you will ultimately have to
pay back) in the form of fees. One way to avoid this is to insist that you be
offered the opportunity to pay for ALL consolidation fees upfront. By doing
this, you can ensure that you will at least be made aware of the quantity of
charges being imposed upon you. Another problem with loan consolidation is that
by extending the terms of your loans (say from 5 to 15 years) you dramatically
increase the amount of interest you pay on your loans. Your interest payments on
your loans accumulate over time. This means that the longer you take to pay your
loan back, the more interest will accumulate. Many students fail to notice this,
as they only focus on the interest rate, and not the total amount of interest
that will be paid over the life of the loan.
Student loan consolidation
is a valuable tool for students who want to defer their repayments until they
earn more or for those who find the nuisance of maintaining many of their
individual loans to be too troublesome. It is important for recent graduates to
consider, however, that these benefits, despite what lenders may lead you to
believe, do not come without negative tradeoffs. By being aware of both the
positives and negatives of student loan consolidation, you can make more
educated decisions about the whether student loan consolidation is the right
solution for you.
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