Getting a higher education these days can be quite expensive. With the rising cost of tuition plus all those expensive books, it can cost a near fortune. Yet in order to get started on a career path and earn a decent paycheck, it is a requirement. So for students who cannot afford to pay out of pocket for their education, this means student loans.
Student loans help to get you through college but once you have graduated and are out in the workforce, it is time to pay them back. One option to consider is student loan consolidation. It makes it easier to pay back all those loans and at the same time helps you to pay them off faster. But is student loan consolidation the right choice for you? How do you consolidate student loans? If you have a bunch of loans with several different financial institutions, then this information might be helpful to you.
What Is Student Loan Consolidation
Student loan consolidation is when you take several student loans from different banks and institutions and lump them all together with one lender. This means that you will no longer be making separate payments on loans that draw different interest rates. You will only have to worry about one payment a month and one rate of interest. Plus, interest rates on consolidated student loans are fixed so they will not change over time.
Why Should You Consolidate Your Student Loans
There are many advantages to consolidating your student loans but is it right for everyone? There are some advantages and disadvantages to it. Before you decide to consolidate your loans, there are some things to consider.
One advantage of a student loan consolidation is that it is easier to maintain the payments and keep track of the current balance. You no longer have to juggle several different loans with their minimum payments while trying to remember the different due dates. Another advantage to a loan consolidation is that the interest rate is fixed. So as interest rates climb, you will still be at the same level which will save you some money. Plus, by consolidating, you will probably be making a lower payment than all of the separate payments combined.
But there are some disadvantages to a consolidation. For one, if the interest rates drop, you will end up paying a higher interest because it is fixed. Another point to consider is that by consolidating your loans, you will usually be extending them and thus you will end up paying more in the long run. Sure, the payments will be more manageable on a monthly basis but the interest is what will cost you. Another thing about the interest is this: the interest rate for a consolidated loan is usually an average of the separate original loans. So if you have several loans at a high interest rate, they will run up the average. It might be better not to consolidate those higher loans.
How To Consolidate Your Student Loans
If you want to consolidate your student loans, the first thing you need to do is to check your credit score. You need a good credit rating in order to get a good interest rate. If you have poor credit, your interest rate is going to be higher, even on a federal loan, and you will not get as good of terms on the consolidation.
You need to decide what lender you want to use. A good way to do this is to do some shopping for the right financial institute. If you check online, you can find a loan calculator that will figure out your consolidation rates. This will help you to figure out how much your loan will be after interest and you can calculate what your monthly payments will be. If you are seeking a private lender, you can check lender websites or go to your local bank. It is possible that one of your original lenders might consolidate all of your loans. If you decide to go with a private lender, be sure to read the fine print and find out what kind of fees they charge.
If your loan is a federal loan, it is not wise to switch to a private lender. With a federal loan, you have options such as deferred payment and loan forgiveness. Federal loans also give the best interest rate over private lenders. If you have separate student loans that are both private and separate, you should not consolidate all of them with a private lender, even if having one payment is more convenient. You can apply for federal loan consolidation online.
Before you apply with any one lender, it is a good idea to seek the advice of a loan counselor. The best place to do this would be at a local bank. Schedule an appointment and go in to talk to a counselor. Their institution may not be the right lender for you but it won’t hurt to get their opinion.