Before discussing the pros and cons of student loan consolidation, it is important to know the difference between federal student loans and private student loans. As a general rule, you cannot consolidate both federal and private student loans into one new loan. Federal student loans include Stafford, PLUS (for parents), Perkins, HEAL and other federal designated loans. Private student loans are generally loans you received from banks, credit unions, schools and other private lending institutions.
The main benefits of student loan consolidation are: generally lower monthly payments, a more convenient way to repay your loans and locking in a fixed interest rate for the life of the loan. Generally, student loan consolidation programs allow you to pick from different repayment plans and since you now have to worry about paying only one bill instead of many, it does provide a more convenient way to repay your student loans. Also, it is important to note that your fixed interest rate will generally be a weighted average of all your student loans. The fixed interest rate cannot exceed 8.25% as mandated by federal law.
There are two main consequences of student loan consolidation.
One, the TOTAL cost of repaying your student loans may be higher. Student loan consolidation programs allow you to extend repaying terms up to 30 years. Thus, your monthly payments may be lower, but you end up paying more interest throughout the life of the longer termed loan. Two, once you consolidate your student loans, you cannot undo the process. So weigh your options carefully before making the decision.
There are many student loan consolidation providers out there.
One of the best resources is to contact your lender who is currently servicing your student loans. Ask them for a loan consolidation application and any information that they can provide. Student loan consolidation can be a complex procedure so make sure you are getting the best advice before starting the process.
About the author:
Thomas Haney is an online writer who often covers personal finance. Visit http://www.a1-retirement-advice.com to get advice about retirement and learn more about topics such as
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