It is becoming more commonplace for students to have multiple loans in order to afford the high costs associated with college. However, there are options to help reduce the costs associated with loans and interest rates, and one of these is consolidation.
Consolidation is the combining of loans together and paying a lender one fee each month to cover the costs of the other loans. This can make it much simpler for students who are struggling with paying off their student loans.
Here are a few ways you can get the most out of your student loan consolidation.
STREAMLINE BILL PAYMENT
By consolidating student loans, the student should have an easier time of remembering the repayment date and only has to write one check. In order to avoid defaulting on multiple loans, the student should endeavor to make the monthly payments on time.
This also reduces the amount of paperwork generated by having multiple loans, making the consolidation process more beneficial for the environment.
EXTEND REPAYMENT TERM
If the student can anticipate that there are going to be economic problems with making loan payments, then consolidation grants him a longer time period to pay off these loans, with the added benefit of reducing the monthly costs. Consolidating may increase the interest rates of payments, but this is balanced with the decreased costs in several monthly payments.
LOWER INTEREST RATE
If the student has increased his credit score since obtaining his student loans, it may be possible for him to consolidate his loans with a lower interest rate. Increasing credit score is essential in showing lenders that one is reliable in paying of debts in a timely manner, and will make the student a more trustworthy borrower.
SWITCHING FROM VARIABLE TO FIXED RATE LOAN
Having a variety of student loans from different sources can lead to having to pay variable interest rates. By consolidating to a fixed rate loan, interest rates will not vary by much if the market interest rates increase over time. This means the interest rates are predictably the same every month, so the student will not be burdened or surprised by the new rate each month.
ALTERNATE REPAYMENT PLAN
Circumstances can change drastically from the initial taking out of the loan, which can make it more difficult for the student not to go into default. Consolidating student loans can open the door for alternative payment options, such as graduated repayment, income-contingent repayment and income-sensitive repayment. The student should not be bound to one set of rules when they no longer apply to changed circumstances.
Shopping around for loans can be difficult for the first time student borrower, and comparing the benefits and drawbacks from different lenders can become even more daunting. Loan consolidators, however, can make it easier on the process. Some consolidators have no origination fees, some provide benefits for making automated payments each month, while others have no prepayment penalties on monthly payments.
LOWERING MONTHLY PAYMENTS
The greatest benefit the student can make most out of consolidating his debts is the lowering of monthly payments. Instead of struggling to balance checkbooks in order to satisfy his debts to different lenders, he can make one payment to the consolidator to satisfy all of his debts in one go.
Consolidation of debts is certainly a good choice for students to make, especially if they are struggling to not default on their loans. Repayment of loans ends up taking a much longer time, but stretching out the payment period allows for the student to have the opportunity to obtain employment, which can help him repay his loans.