Sometimes it makes sense to consolidate your student loans but not everyone wishing to follow that route qualifies for the process. The following are normally necessary before you can be considered eligible for a consolidation:
- Enrolled in school less than part time or not in school at all
- Currently making loan payments or within the “grace” period
- Have a good repayment history, which typically means not be in default
- Hold a balance of at least $5,000 to $7,000 in loans
Now that we have the particulars out of the way, let’s take a look at a handful of reasons that you could benefit from a decision to consolidate your student loans.
1. A single larger payment rather than a handful of small ones can simply your life.
2. In many cases, a consolidation extends the the term of your loan, which can reduce your monthly payment if you’re having financial difficulties. Keep in mind an extension means you will incur interest and pay more in total over the life of your loans.
3. You may be able to receive a lower interest rate through a refinance if your credit has improved since you took the loans out.
4. Borrowers often have various loans at different interest rates, some variable. A consolidation can pool everything under one fixed rate so there will be no future interest rate hike surprises.
5. If you are a valuable customer, your lender may extend certain other benefits such as interest rate discounts for setting up automatic payment or paying your bill on time.
It’s not all wine and roses when it comes to consolidation. There are some factors you should be aware of which could work to your detriment. As mentioned, you may pay more in total interest as well as having a larger total loan repayment. Obviously, consolidating for a longer term means you will be paying for a longer period of time. Most Federal loans are issued for an initial ten year period but can be extended with some consolidation for up to 30 years.
One final note, be wary of lenders offering to drastically reduce your interest rate. The student loan consolidation industry is rife with scams so it behooves one to perform their due diligence before signing on the bottom line.
The Young Wealth Team
Flickr / RambergMedialmages