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Student Loan Consolidation-the Good, Bad, And The Ugly
By Dan Johnson, Thu Dec 8th
With tuition costs rising across the country, it has becomeincreasingly necessary for college students to take on debt inan effort to get their degree. But student loan repayments areoften difficult for students to make, especially consideringthat early on graduates incomes are typically quite a bit lowerthen their ultimate earning potential. Due to thesecircumstances, Student Loan Consolidation is a valuable optionfor many recent college grads to pursue. How Student Loan Consolidation Works Student Loan consolidationworks like most consolidation programs. A single lender takes onthe various loans you have accumulated, like Stafford, Perkins,HEAL, NSL, and private loans. While the terms and repaymentconditions vary among these many different lenders, a singleloan consolidation company will pay off all these loans andoffer you a single, typically longer term, loan. What this meanspractically, is that instead of having to pay off one loan in 3years, another in 5, and another in 10, or having one loan'sinterest rate be fixed and another variable, all your loans arecompiled under a single system. You can then negotiate with yourloan 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 yourmonthly payment will be. Why Consolidate? Consolidating your student loans offers you theopportunity to stretch out your payments, so as to takeadvantage of your future earning power. It is quite reasonablefor students to believe that they will earn more as theircareers progress, and by stretching out the
length of theirrepayments, they won't have to pay the most on their loan whiletheir income is at its lowest point. Another benefit of studentloan consolidation programs is that they take a lot of theconfusion and problems out of student loan repayment. For recentgraduates who have loans from a variety of public and privatelenders, keeping up with the unique terms and conditions ofevery loan can often be a bit of a nuisance. For these reasonsconsolidation is a very popular option. But that does not meanthat it is not without its costs.
Why Not Consolidate? Loan consolidation of any variety, is soappealing for lenders because they can charge relatively high"consolidation" fees. While student loan consolidation isregulated better than most forms, loan consolidation companiesstill 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 theopportunity to pay for ALL consolidation fees upfront. By doingthis, you can ensure that you will at least be made aware of thequantity of charges being imposed upon you. Another problem withloan consolidation is that by extending the terms of your loans(say from 5 to 15 years) you dramatically increase the amount ofinterest you pay on your loans. Your interest payments on yourloans accumulate over time. This means that the longer you taketo pay your loan back, the more interest will accumulate. Manystudents fail to notice this, as they only focus on the interestrate, and not the total amount of interest that will be paidover the life of the loan. Student loan consolidation is a valuable tool for students whowant to defer their repayments until they earn more or for thosewho find the nuisance of maintaining many of their individualloans to be too troublesome. It is important for recentgraduates to consider, however, that these benefits, despitewhat lenders may lead you to believe, do not come withoutnegative tradeoffs. By being aware of both the positives andnegatives of student loan consolidation, you can make moreeducated decisions about the whether student loan consolidationis the right solution for you. About the author:Dan Johnson enjoys writing about student loan consolidation.
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