You might have heard depressing statistics about student loans on the media. Even worse, you might be one of their victims. For some students taking loans is not a choice, but a requirement as they do not have a solid financial background. These students borrowed loans for the college where they entered with ambitious dreams of studying and shaping a successful future. However, lack of financial illiteracy among young people, together with high college fees, saddles students with huge debts. One out of five adults has a student loan in America, which accumulates to almost 1.5 trillion $. The situation seems depressing; However, there also emerged many tools, including Student Loan Consolidation, that help to get out of debt, or, at least, to aid you to repay.
Types of Student Loan Consolidations
Before we pass to the explanation of consolidation, you need to understand different types of loans. The most preferred loan type is Federal loans, which consist of more than 60% of all loans. The government makes those loans instead of private organizations, like banks or credit unions. It is usually wiser to first consider all available federal loans before contacting with a private lender. You can get different types of Federal loans: subsidized or unsubsidized Stafford loans, parent PLUS, grad PLUS, or Perkins. The difference between the first two is that if you get a subsidized loan, you do not pay interest rates until you finish college. Besides, you will get a grace period of 6 months. However, this type is only available for undergraduate students.
PLUS loans originally stood for Parent Loans for Undergraduate Students. Parent PLUS loan allows parents to pay for their students’ fees. However, there also exists the Grad Plus loan, which is a type of student loans with fixed interest and flexible limits. You should also know that Grad PLUS is only available for graduate students. Besides, Stafford and Perkins loans will be favorable if you do not have any collateral or credit history.
The benefits of those loans are that they offer low-interest, long payback periods, and Student Loan Consolidation is possible after graduation. Perkins is more preferred than Stafford because they are always subsidized, has a lower fixed interest-5%. Besides you get a nine-month grace period. In addition, you can get private loans from banks or other lending institutions. The advantage of a private loan is that if you have an excellent credit history, you can get lower interest rates.
Student Loan Consolidation
Unfortunately, a student loan is not a one-time process. Let’s assume that you are a bachelor and you study for four years. It is highly probable that you will need four private loans, each for one year of college payment. Besides, if your financial situation is weak, you may make additional loans to finance your other expenses. Hence, you will end up among complicated, overwhelming student loan nightmare. However, there is a solution to this problem, called Student Loan Consolidation, which will offer you some advantages.
The process of consolidating has a basic logic. In simple words, you just take a new loan. Do not be confused; you might wonder why you should take a new loan while you have many? This new loan will consolidate your other loans with a new interest rate and other terms. Therefore, instead of paying to multiple loans with different characteristics, you just pay one loan. For being eligible to Student Loan Consolidation, you need to have a good credit score and payment history.
Besides, you should finish college and start repaying or be in the grace period. There exist two types of consolidation; federal and private. Keep in mind that you cannot consolidate the federal loan with the private one. Moreover, for federal consolidation, there does not exist any minimum debt limit. However, most private lenders will put a minimum level for your debt amount to be able to consolidate.
While you try to tackle the debt problem with Student Loan Consolidation, it will be helpful if you understand its benefits and drawbacks beforehand. If managed correctly, consolidation can aid your repayment plan and finally, get you out of debt crisis. Before you decide to consolidate, it is better to get familiar with its features.
The most significant advantage of consolidation is simplicity. Paying one time or two times in a month is much easier than multiple times. Sometimes, when we get overwhelmed, we can forget about the payment dates. Monitoring and keeping track of student loan records might be challenging. However, if you consolidate, you have to follow one new loan, and you ensure on-time payments. With the help of more organized loan processes, you will not also have to deal with penalties for late payments.
Better Payment terms
Depending on the interest rates of your current loans, a consolidated loan may decrease your monthly payments or prolong repayment period. It also may happen due to your enhanced credit history. When you took your current loans, you were a student with a low potential of repayment. However, if you want to consolidate, you should be a graduate. And if you have found a new job, or you enhanced your credit history in any way, your new loan may offer you a lower interest rate. Lastly, you can substitute your variable-rate loans to a fixed-rate one which ensures the same pay no matter of economic conditions.
Cons of Student Loan Consolidation
Unfortunately, student loan consolidation does not always improve your financial difficulties. It can even worsen if you do not consider all features. All the benefits mentioned above might turn against you depending on your current loans, interest rates, and repayment periods.
Loss of benefits
Consolidation may erase the benefits that come with other loans. For instance, if you consolidate federal loans during the grace period, you should start payments immediately. Hence, your six month grace period might be lost. Moreover, you might lose cancellation benefits or rebates of your current loans. If you consolidate, as a federal loaner, you might lose forgiveness benefits. This benefit happens due to the wrong management of the educational department.
Worse Payment terms
If you do not calculate your current debts and future terms of the consolidated loan, you might end up with higher payments than before. Besides, the repayment period might be prolonged, which is sometimes not preferred as the future is always uncertain. Most of us are not sure how our financial conditions will be in a few years. Moreover, sometimes, consolidation can be a variable-rate loan that will increase over time.
As you understand, student loan consolidation has both advantages and disadvantages. You can get better conditions of student loan consolidation, only if you make your calculations beforehand and decide whether it is suitable for you or not. With its eligibility requirements, different types and terms, the process might seem confusing. Besides, if you do not have time or enough financial illiteracy to deal with consolidation, Student Loan Resolved is ready to help you anytime you wish. We have a professional team of advisors. Besides, we offer you many other solutions, such as student loan forgiveness. All you need to do is contacting us to learn more about our services, ask your questions, and utilize our services.