To consolidate your student loan to a fixed rate can be substantially better, reducing your regular payments by more than forty percent. It may also be possible to stretch the term of your payment hence reduce your monthly outgoing.
The main disadvantage when you consolidate your student loan within the six month grace period is that you must start making your payments immediately. This can be extremely awkward if you haven't yet a job outside of graduation. You can wait to consolidate your student loan just before the end of the grace period, and still receive the lower rates. But remember once you have consolidated your student loans you cannot un-consolidate them, so consider your choices before committing yourself.
How is interest calculated when I Consolidate Student Loans?
When you come to consolidate your student loans, the lending firm pays off your government loan and issues you a new loan under its own name. The typical way to determine the interest rate on the new loan is to take the average interest rates on all of the student loans, and offer a new rate that is an eighth of a percentage point higher (up to a maximum interest rate of 8.25%).
Although agreeing to a higher interest rate might not sound like a good reason to consolidate student loans, this rate is fixed over the life of the loan, whereas the government rate will fluctuate. Since rates are at an all time low at the moment, locking in the current rates might be a good idea.
Furthermore, many banks give you ways to bring down the percentage rates. For example, some lending institutions will drop the rates by as much as a quarter point if you agree to automatic deductions from a checking or savings account, whereas others drop the rates after a certain number of timely payments. As an additional bonus, there is no penalty for paying off your consolidated loan early.
There are alternatives to consolidating your student loans. Before you decide to consolidate you should carefully consider them. Did you realize that it is possible to have your student loan cancelled altogether? Your student loan may be cancelled if you choose to become a volunteer for the peace corp., or work for the government in a low-income area as a teacher or doctor. Cancellation however, is not possible once you have consolidated your student loan.
Another time to hesitate prior to choosing to consolidate student loans is when you are close to completing your payments. Increasing your payments and saving yourself some interest and the hassle of consolidation may be more advantageous.
One of the greatest benefits of consolidating student loans is that doing so can actually lower your monthly payments by 50 percent or more. Student loan consolidation programs allow graduates to combine all eligible student loan debt into one loan, locking in a lower interest rate, and as a result securing lower monthly payments.
If your federal student loan debt amounts to less than about $5,000, you could benefit from a Federal Direct Consolidation Loan, which has no minimum amount to consolidate. You will have only one lender, the U.S. Department of Education, for all consolidated student loans. This type of student loan consolidation offers flexibility when setting up a repayment plan, with four separate plans tailored to meet the needs of individual borrowers.
If your total student loan debt amounts to much more than $5000, you should do some online comparison shopping, as national lenders often have better rates and offer additional discounts for making a certain number of on time payments, and paying by automatic monthly bank account deductions.
When looking at student loan consolidation options, you need to be aware there are specific rules and criteria which must be met. For instance, you may not consolidate your student loans while you're still attending school (unless you are within 6 months of graduation). And you can't consolidate federal student loans which are currently in default.
You also cannot consolidate student loans which have been previously consolidated, but you may do a student loan consolidation if you have a new loan to add. If, for example, you have finished your undergraduate studies and consolidated your student loans, but then go on to graduate school, you can get a new consolidation loan to combine all of your outstanding student loans.
Normally you must be either in the grace period of your loans, or currently making payments on them. The grace period usually lasts for six to nine months after you've graduated or left school. If you've already begun repaying your student loans, they must be current and in good standing before you can consolidate them. In most cases, student loans that are in deferment status can be consolidated.
When consolidating your student loans, your interest rate on the new loan will be based on a weighted average of your original interest rates. The fixed interest rate on your consolidation loan can lower your monthly payments significantly, especially if your existing loans have variable interest rates. If your existing loans have fixed interest rates, the benefit will not be as great.
One often overlooked benefit of student loan consolidation is that it can actually improve your credit. Your credit score is partially based on the number of credit accounts and outstanding loans you have. Too many can have an adverse effect on your credit. Consolidating your student loans will immediately reduce the number of accounts you have open, which will increase your credit score.
Consolidating student loans is not the right option for every college student and recent graduate, but in many cases it can be the best way to lower the monthly payments and simplify the repayment process. Combine this with an improved credit score, and student loan consolidation can be an excellent graduation present.
Both Helen Moore & Gregg Pennington are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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