College is great; it provides you with valuable skill and education, and it gives you a shot at getting a decent job through which you can attain financial stability. However, going to college means that you might need to take on student loans in order to fund your education. Hence, many college students and recent graduates live with the realization that education is not free and that there’s a mountain load of student loans waiting to be paid even before you get your first job.
This article explores three unusual but important asked questions about student loan consolidation.
What is student loan consolidation?
Student loan consolidation is simply the act of combining many different student loans from different sources into a single loan. After the consolidation, the borrower will only be responsible for repaying a single loan and paying a single interest rate in a single monthly payment. The idea behind student loan consolidation is to eliminate the pressures that recent graduates face as they worry about how to service all their student loans when they are just starting out their careers.
Hence, student loans consolidation can adjust the repayment plan and interest rates to ensure that you don’t spend all your paycheck on servicing loans. In fact, student loan consolidation can help you to secure a fixed interest rate, which will make it easier for you to plan your financial future with more certainty. However, it is important to know that loan providers have different options for students; hence, not all kind of student loans can be consolidated.
Is it possible to consolidate federal student loans and private student loans?
The current regulation for student loan consolidation doesn’t permit borrowers to consolidate federal student loans with other kind of debts, including private student loans. However, you can consolidate different kinds of federal student loans such as federal family education loans and direct loans through the Federal Direct Loan Consolidation program. You can qualify for the federal direct loan consolidation scheme even if you have defaulted on loans inasmuch you are gainfully employed.
However, if you hold private student loans, you can still find a way to consolidate them using one of the many refinancing tools that lenders provide. For instance, you can consolidate a private student loan with a home equity loan if you own a house. More so, you can consolidate different private student loans with education lenders inasmuch as the fees and interest rates are reasonable.
What are the cons of student loan consolidation?
Many people know that student loan consolidation can ease financial burdens by spreading the repayment plan over a longer term. However, very few people understand that it might not always be smart to consolidate student loans.
To start with, if you qualify for loan forgiveness at the end of your loan repayment plan, it might not be smart to consolidate the loan and lengthen the repayment term. It might be smarter pay up for the next couple of years so that the unpaid part of the loan can be forgiven at the end of your repayment term.
Secondly, student loan consolidation often extends the lifespan of the loan by merging the terms of the different loans being consolidated. Hence, you might end up paying more in interest because of the longer repayment life and the accumulated interest could cost you more than what you could have paid if you stuck with the original repayment plan.
Lastly, student loan consolidation will impose new terms and conditions on your and the terms and condition of the original loans will be nullified. It is important that you examine the terms of your original loan and ensure that you’ll get better terms under a loan consolidation program before you decide to consolidate your student loans.
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