Consolidating Student Loans: Do You Need It?

2007-03-08 10:33:40

( Financial )



If you have just graduated from college and you are considering consolidating student loans that you have, you may want to evaluate your current situation. Student loan consolidation may not be for everybody.

Consolidating student loans do have several advantages. You just write one check each month to pay them off, you get a fixed interest rate so you do not have to worry about it changing and affecting your monthly payments and you can extend your loan payment schedule by as much as 30 years depending on the amount that you still owe.

Federal student loan consolidation does not have prepayment penalties and other hidden fees. The federal government provides you with your loan timetable and sets a ceiling interest rate. Private consolidation however, is not the same as its federal counterpart. Private consolidation may have prepayment penalties and variable interest rates. Interest subsidies may also not apply if you go through private consolidation.

If you are in dire need of more cash at the moment, consolidation may be a good idea. Consolidating student loans may decrease your monthly payments by a significant percentage giving you more breathing room. However, if you only have a few more months to go or a couple of thousand more left in your student loans, student loan consolidation may be a bad idea as this may eliminate the benefits you have earned for paying all your monthly dues on time.

Also note that you can only consolidate your student loans once. So if the interest rates are lower in the future, you are out of luck. This may not be applicable if you go back to school and apply for new loans or if you have an outstanding loan that was not included in the original consolidation.

Most lending institutions offer both online and paper-based applications. You may visit your student loan consolidation center and they will be able to help you out wit your application.


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