Student Loan Consolidation: Should You Do It?

Going to college can mean various expenses. Aside from the tuition fees, there’s the stay, food, car, and other miscellaneous expenses. Because of all this, students are forced to take on other types of loans and may even take on credit cards as well. Sometimes, the number of payments students have to make may cause confusion and may prove to be too heavy. This is when student loan consolidation comes in.

Loan consolidation is when several individual loans are merged to become one large loan. The overall result is a lower monthly payment and the obligation to pay only one entity, making it easier to track down your creditors and balances.

One advantage of loan consolidation is that programs that facilitate these loans generally have a lower interest rate than the individual creditors. The rate of interest is calculated as the weighted average of all your previous loans and the maximum interest a company can charge is only 8.25%. Federal student loan consolidations may even extend the term of the loan for as long as 30 years. Student loan consolidation companies also offer flexible payment terms compared to the individual loan plan.

Is Student Loan Consolidation For You?

Despite the clear advantage of having to pay off only one creditor, it is important to delve deeper whether you really need to consolidate those loans. Despite the obvious advantages, there are some downsides to it. One disadvantage of student loan consolidation is that you lose any borrower’s benefits that you may have had with an individual loan. These benefits could come in the form of rebates or interest rate discounts. Discharge benefits will also be lost. The chance of loan cancellation will also be lost once the individual loans are consolidated. If you have availed of too many plans, you will no longer have the option of canceling one loan, forcing you to pay off everything.

One clear disadvantage is also when you choose to go for the longer term. Although your monthly payments may have decreased significantly and you can breathe easy for now, this may not be the case in the future. If you calculate all your accumulated expenses throughout the years, you may realize that you ended up paying even double the original amount because of the consolidation.

Student loan consolidation does have its highlights, but it also has some major points that need to be given adequate thought. Should you choose to go for it, bear in mind that you can choose between fixed and variable rates. Also, look thoroughly at the options. There are some that give you a penalty for pre-payments. Never go for those.

Before making a decision to consolidate your loans, make sure to weigh in the pros and cons. Maybe all you need is some organization and financial management to get your finances in order. If that’s the case, you may be better off not consolidating.

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