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The How And Why Of Student Loan Consolidation
Copyright (c) 2007 Bernard Pruett
SecureLoanConsolidation.com
http://www.SecureLoanConsolidation.com
Borrowing money to attend college these days is not unusual.
Thankfully, the United States Government has made doing so easier
than ever. For a number of decades, the government has been
offering financial aid to those in need through the Free
Application for Federal School Aid (FAFSA) program. The majority
of aid from this source comes in the form of student loans. Since
many students have had to take out several different loans over
the course of their college career, they may be faced with a
variety of different payments and due dates when the time comes
to begin repayment. For this reason, many borrowers have turned
their attention to student loan consolidation programs.
A student loan consolidation program may not seem important to
many new graduates. After all, repayment on the loans doesn’t
begin until 6 months after graduation. This gives the borrower
half a year to find steady employment to help them afford these
payments. However, this plan does not work out for everyone; in
these cases, student loan consolidation may be needed.
Many students intend to begin their careers upon graduation. With
today’s economy, that plan may not be realistic. After
graduation, many students find that they must settle for
internships or have to begin their careers in an entry-level
position. These types of jobs rarely pay well. The lucky few who
do land a job in their chosen career field may still find it
difficult to afford their monthly bills. In any of these
situations, a student loan consolidation can be very beneficial
to a recent graduate.
Before considering a student loan consolidation program, it is
important that the borrower understand what consolidation
entails. When a student applies for financial aid, they may
receive various types of loans; each loan will be for a different
amount and may have a different interest rate. Since students
apply for financial aid on an annual basis, the number of loans
(as well as the types of loans) they accept may vary. This can
complicate matters when repayment begins since the borrower may
have to juggle three or more student loan bills along with their
monthly living expenses.
Student loan consolidation can help simplify the repayment of
student loans. When student loans are transferred to a new
lender, all debts that the borrower owes are combined into one
amount. Student loan consolidation means that a student will only
have to focus on one debt as opposed to three or four. The
borrower owes one amount on one due date every month.
In addition, student loan consolidation can also save the
borrower money. When the government is the lender, the interest
rate on each loan is variable, meaning it is likely to increase
each year. With student loan consolidation, the interest rate is
fixed. Sometimes this rate can be lower than the original
government loans, because it is figured through a weighted
average. In other words, the lender will average all the interest
rates from the separate loans together to come up with the new
loan’s interest rate. This can result in the borrower saving
thousands of dollars over the term of his or her repayment.
Another benefit to student loan consolidation involves the
payment of monthly bills. Student loan consolidation is
beneficial in that it can decrease monthly debt. The total amount
the borrower owes is the same; however, the amount that the
borrower must pay each month can decrease dramatically with
consolidation.
If a borrower chooses to approach a private lender about student
loan consolidation, it is important that he/she understand how
the monthly minimum payments work. The amount owed per month
maybe low, which could give the borrower more money to work with
on a monthly basis.
However, the drawback is that if the monthly minimum payment is
low, the amount of time needed to pay off the debt will increase.
Since the interest for student loan consolidation is constantly
accruing, this means that the borrower may end up paying more
money in the long run.
In any event, it is much better to make lower payments for a
longer period of time, than to keep a higher payment and not be
able to pay the bill. Missed or late payments on any debt can
easily result in a bad credit report and a deteriorating credit
rating over time. This should be avoided at all costs, as less
than perfect credit could stand in the way of future loans.
Additionally, there are no early payment penalties on student
loan consolidations. A borrower can always pay more than the
minimum payment without being penalized. Making extra payments
when possible is always a good idea because the principal balance
will be reduced. This leads to a reduced amount of interest
accruing on the loan, which over time can save the borrower
hundreds of dollars.
Student loan consolidation is an excellent idea for anyone faced
with making payments on multiple student loans. There are several
different repayment options available and no fees to apply. A
good lender will help determine the best plan for each situation.
The benefits are numerous and the drawbacks are few. Sometimes
things aren’t too good to be true; this could be one of those
things.
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Bernard Pruett teaches people about personal finances and consumer
debt for http://www.secureloanconsolidation.com . Find out more
information about student loan consolidation and other student
loan financial aid advice and help. Reprint this article with
links intact.
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