Should You Consolidate Your Student Loans?

For many people, the words “loan consolidation” seem to equate with meaning that you have overspent, and now you are looking for a way to keep floating financially. With student loans, this is not necessarily the case. By the time students finish up their degrees, they have often stacked up multiple types of student loans.

Undergraduates qualify for at least two major types of federally subsidized student loans. Graduate students can qualify for additional types of loans. Finally, post-graduate students have access to still other loan types. If you add in a few unsubsidized loans along the way as an undergraduate, you could find yourself getting writer’s cramp from filling out all of those checks each month. Loan consolidation can make good sense.

Before starting the consolidation process, make sure that you are not eligible for programs that repay your student loans for you. Many states and agencies will do loan repayment or forgiveness if you qualify. There is no need to have consolidate a loan that qualifies for this type of repayment option. In fact, by consolidating this loan into your package, you could remove yourself from the opportunity to turn a loan into a grant.

There are some very good benefits to student loan consolidation. The most obvious one is that you simply reduce the number of loan payments that you have to keep up with each month. This saves you time and worry. It also helps to assure that you do not miss needed payments and get slapped with punitive penalties and potential dents in your credit history.

Having fewer outstanding debts looks better to future creditors. When it comes time to buy your house, a consolidated loan that is in excellent standing looks better than several smaller ones scattered about. It shows financial responsibility on your part. Banks like this.

As incentive to persuade you to consolidate your student loans, the government and banks traditionally offer deals to sweeten the pot. They begin by showing that a consolidated loan payment equals less money needed to service this loan each month. A lower payment always sounds good to people who are needing to pinch a few pennies. Often, they will offer to extend the repayment period. This will further reduce your monthly payment, but you have to pay on it longer. You can always overpay the payment and save interest in the long run.

A consolidation loan usually will save you points or lower the percent of interest being paid on the balance each month. This again will serve to save money and reduce your monthly payment. All of these incentives added together can result in a significant reduction in your monthly loan repayment costs. This means more money in your pocket to save, invest, or purchase needed items.