The Pros And Cons Of Consolidating Student Loan Debt.
Article By : Patrick Mansfield | U.S. Consumer Finance
Many students who enter college must take out loans to pay off their tuition, room and board and other expenses. The thousands of dollars in student loans can be overwhelming for some people, and they wonder how they will pay off all their loans on time. It is possible for students to consolidate all their loans into one loan with one monthly payment and one interest rate. This can be very helpful for people who want one bill a month. However, there are pros and cons to student loan debt consolidation that each person should consider.
Subsidized and unsubsidized Direct and FFEL Stafford Loans, Direct and FFEL PLUS Loans, Supplemental Loans for Students (SLS), Federal Perkins Loans, Federal Nursing Loans, Health Education Assistance Loans and other loans can be consolidated through this program. A person can only consolidate loans in his or her name. A Parent PLUS Loan cannot be transferred to a student to pay off. Loans can be consolidated after graduation, after leaving school or after dropping below half-time status. It is best to wait until a person is out of school to consolidate all their loans. The rate is the weighted average between the loans rounded up to the nearest 1/8 of a percent to get the fixed interest rate.
Once loans are consolidated, there is no going back. The loans are considered paid off and closed. Future loans can be added to the bill of the other loans. It is important to remember that a consolidated loan is affordable because it is spread out over 10 to 30 years instead of the traditional 10 years. This means that the monthly payment amount will be lower, interest will not exceed 8.25 percent, but more money will be paid for the interest over the time period. Students who consolidate also lose benefits like discounts and rebates from their original lender.
People who do not have a hard time paying off of their loans over the recommended ten years should not consolidate. Consolidation should be done by those people who need more time; however, they will be paying for that extended time period. No application fees should be paid when people apply for consolidations. There are different repayment plans for each person and the chance to apply for forbearance or deferment if necessary. The first payment will be due after the loan has been disbursed, usually within 60 days.
Should I Consolidate My Student Loans?
Are your monthly payments manageable? If you have trouble meeting your monthly payments, have exhausted your deferment and forbearance options, and/or want to avoid default, a Direct Consolidation Loan may help you.
Too many monthly payments driving you crazy? If you send payments to more than one lender every month and want the convenience of a single monthly payment, consolidation may be right for you. With a Direct Consolidation Loan, you will have a single lender - the U.S. Department of Education - and a single monthly payment.
What are the interest rates on your loans? If you have variable interest rates on your Federal education loans, you may want to consolidate. The interest rate for a Direct Consolidation Loan is fixed for the life of the Direct Consolidation Loan. The rate is based on the weighted average interest rate of the loans being consolidated, rounded to the next nearest higher one-eighth of one percent and cannot exceed 8.25 percent.
How much are you willing to pay over the long term? Like a home mortgage or a car loan, extending the years of repayment increases the total amount you have to repay.
How many payments do you have left on your loans? If you are close to paying off your student loans, it may not be worth the effort to consolidate or extend your payments.