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Student
Loan Consolidation-The Good, Bad, and the Ugly
With tuition costs rising across
the country, it has become increasingly necessary for college students
to take on debt in an effort to get their degree. But student loan repayments
are often difficult for students to make, especially considering that
early on graduates incomes are typically quite a bit lower then their
ultimate earning potential. Due to these circumstances, Student
Loan Consolidation is a valuable option for many recent college
grads to pursue.
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How Student Loan Consolidation
Works
Student Loan consolidation works like most consolidation programs. A single
lender takes on the various loans you have accumulated, like Stafford,
Perkins, HEAL, NSL, and private loans. While the terms and repayment
conditions vary among these many different lenders, a single loan consolidation
company will pay off all these loans and offer you a single, typically
longer term, loan. What this means practically, is that instead of having
to pay off one loan in 3 years, another in 5, and another in 10, or having
one loan’s interest rate be fixed and another variable, all your
loans are compiled under a single system. You can then negotiate with
your loan consolidation lender, about the terms of the loan. Typically,
students opt for a repayment plan of 10 to 30 years. Obviously, the longer
the term of the loan, the lower your monthly payment will be.
Why Consolidate?
Consolidating your student loans offers you the opportunity
to stretch out your payments, so as to take advantage of your future earning
power. It is quite reasonable for students to believe that they will earn
more as their careers progress, and by stretching out the length of their
repayments, they won’t have to pay the most on their loan while
their income is at its lowest point. Another benefit of student loan consolidation
programs is that they take a lot of the confusion and problems out of
student loan repayment. For recent graduates who have loans from a variety
of public and private lenders, keeping up with the unique terms and conditions
of every loan can often be a bit of a nuisance. For these reasons consolidation
is a very popular option. But that does not mean that it is not without
its costs.
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Why Not Consolidate?
Loan consolidation of any variety, is so appealing for lenders because
they can charge relatively high “consolidation” fees. While
student loan consolidation is regulated better than most forms, loan consolidation
companies still manage to add quite a bit to the principle of the loan
(that you will ultimately have to pay back) in the form of fees. One way
to avoid this is to insist that you be offered the opportunity to pay
for ALL consolidation fees upfront. By doing this, you can ensure that
you will at least be made aware of the quantity of charges being imposed
upon you. Another problem with loan consolidation is that by extending
the terms of your loans (say from 5 to 15 years) you dramatically increase
the amount of interest you pay on your loans. Your interest payments on
your loans accumulate over time. This means that the longer you take to
pay your loan back, the more interest will accumulate. Many students fail
to notice this, as they only focus on the interest rate, and not the total
amount of interest that will be paid over the life of the loan.
Student loan consolidation
is a valuable tool for students who want to defer their repayments until
they earn more or for those who find the nuisance of maintaining many
of their individual loans to be too troublesome. It is important for recent
graduates to consider, however, that these benefits, despite what lenders
may lead you to believe, do not come without negative tradeoffs. By being
aware of both the positives and negatives of student loan consolidation,
you can make more educated decisions about the whether student loan consolidation
is the right solution for you.
About the author:
Dan Johnson enjoys writing about student loan consolidation. Visit http://www.slclowdown.com/
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This article courtesy of http://studentloans.seeking411.com
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