Is Student Loan Consolidation for You?
In case you have several financial loans (either private or federal student loans) and you would like to combine these loans into one single consolidated monthly payment, we can suggest you continue to read. Here you can find a comprehensive list of companies that offer student loan consolidation and their reviews.
Before you start the process, there are some things that you really need to understand about the market of student loans. Please get well informed before you get involved in the process of loan consolidating. See also our review of the best GMAT prep tools.
Consolidating Student Loans
You can find 3 potential advantages to consolidating student loans.
- Reduce Your Monthly Payments
- Benefit from low-interest rates
- Comfort of just 1 monthly payment
The major disadvantage is that you often will need to extend the term of the loan, thus increasing the total amount of interest you will have to pay.
By way of example: suppose you must pay back the total sum of 50,000 in Student Loans at 5% interest and a 10-year term with 5 different loan providers(10,000 from each lender). If you would then combine your five loans to just one lender and agree on a 25-year term, your monthly payments would change from $530/month to $292/month. But please understand that the total Interest payable will go up from $13,640 to over $37,500!
Must pay back: $50,000
- 5 different loan providers
- Interest Rate: 5%, Term: 10 years
- Total Monthly Payment: $530
- Total Interest Payable: $13,640
Consolidate 5 loans to reduce monthly payment, and by extending the length of the consolidated loan
Must pay back: $50,000
- 1 Consolidate lender
- Interest Rate: 5%, Term: 25 years
- Total Monthly Payment: $292
- Total Interest Payable: $37,688
In case you want to Consolidate Private Student Loans and Federal Student Loans
Federal Student Loans are granted by the federal US government by way of the Student Aid website, and this type of loans typically offers the best conditions and they normally represent the largest amount of loans that students carry. Private student loans usually come with more aggressive repayment plans and are generally less advantageous. They usually have higher interest rates, yet will be much easier to consolidate.
How Can You Consolidate Federal Student Loans
Students who have federal student loans with the government, normally have 3 standard options, and one newer development (option 4):
- Special Direct Consolidation Loans (limited time only) Special direct consolidation loans (or Obama student loans) are a temporary option for credit seekers who match a collection of criteria to turn their loans into one financial loan provided by the government. The positive aspects of the Special Direct Consolidation Loans include things like reduced interest rates and no need to substantially change your repayment conditions if you do not wish so.
The main difference between the Special Direct Consolidation Loan and a traditional bank loan is that each separate loan in the consolidated loan maintains its initial repayment term enabling you to save some money in interest payments during the lifespan of the new loan.
To qualify, borrowers must:
- Hold one or more student loans issued by a commercial loan company in the Federal Family Education Loan
- Hold one or more student loans issued by the Federal Government
Another important difference with the Special Direct Consolidation Loan is that you can combine loans from commercial Student Loan Companies loans with this Federal program.
- Direct Consolidation Loans A Direct Consolidation Loan offers you a good way to consolidate multiple federal student loans into one new loan. If you consolidate federal student loans you can reduce your monthly payments by increasing the duration of your combined loan and possibly reduce the interest rate you have to pay. The main advantage of a Direct Consolidation Loan is that you are able to substantially lower your monthly payments, though you should take into account the added interest costs over the lifespan of the loan.
- Negotiate Your Federal Student Loan into a Private Consolidation Loan When you have a student loan from the Federal Government and if you want to consolidate it, you could find student loan companies which are offering lower interest rates than you can get from the Government. The possible disadvantage of consolidating a Federal Student Loan into a private loan may lie in the extreme interest rate increases from some these companies. You can find quite a few student loan consolidation companies that offer teaser interest rates to draw in students to consolidate their federal loan with them. Once they have the customer, they will gradually increase the rate. Be aware, and this option is not recommended! Be sure that the advantages of consolidating a federal student loan into a private loan over-shadow the costs.
- Consolidate Student Loans through Peer to Peer Lending Peer 2 Peer Lending is a relatively new financing option, but through the development and increase of Peer to Peer lending sites many students who are not eligible for conventional consolidation loans, now have the opportunity to obtain one via one of these new sites. The best-known sites are: Lending Club and Prosper.com
How To Consolidate Private Student Loans
Private student loans fall under the same regulations as federal student loans. Be aware that in case you declare bankruptcy, your student loan debt will not vanish. If you are able to consolidate private student loans you will benefit from the fact that you will be able to combine a number of monthly payments into one monthly payment to one lending company, and if your Credit Score has significantly improved, it might be an excellent idea to consolidate your private student loans. You can find several websites where you are able to take a look at your credit score for free -check for example this website
If you can, consolidate your student loan and mortgage By the time you have been out of college for quite a few years, and you possess a house that has significantly increased in value, you might take out a Home Equity Line of credit which will allow you to repay your student loan debt. This basically is what consolidating your Student Loan with your Mortgage is all about, and it might result in the benefit of lower monthly interest payments.