In this competitive era, high school goers tend to gather funds from different sources for their college education. Deserving students with poor credit scores borrow from many lenders to cover their personal needs and tuition. If you have borrowed student loans from different lenders, you must focus on consolidation while repaying. As suggested by its name, student loan consolidation is the process of merging all outstanding student loans into a single one. It is a strategic move that will help you save cash, reduce your monthly rate of interest, reduce the number of loans you have and help you take complete control of all your debts.
Loans that can be Consolidated
When it comes to higher education funding, there are several different types of borrowing options for parents and students. From this list, fifteen loans can be consolidated together. This includes the Federal Subsidized Stafford Loans, Federal Unsubsidized Stafford Loans, Federal Perkins Loan, Loans for Disadvantaged Students, Guaranteed Student Loans and Health Professions Student Loans. These loans are managed and determined by the US Department of Education.
Legal Terms and Conditions
The Higher Education Act of 1965 offers loan consolidation through two different programs, namely the direct loan program and federal family education loan program. These loans will let you create a brand new loan, which can be used to pay off a number of existing ones. Generally, loan consolidation will extend your reimbursement duration and reduce the monthly payments you make.
While consolidating student loans, you must adhere to certain principles. Firstly, you should approach your current lender. Check if they will let you consolidate the present loans. Steve Bucci, a famous debt adviser states that you must start with your financing institution or union. If they have reliable consolidation plans, it would be wiser to stick onto their services. However, if your credit union or financing institution don’t offer a sensible rate of interest, you should go for other lenders. Always bear in mind that the more research you do the better results you can achieve.
The Prudent Change
The new consolidated student loan will definitely have unique terms and conditions. For instance, its reimbursement schedule will differ drastically and the repayment process may have become simpler. According to the Loan Consolidation Information Centre, the strategic move may reduce the final loan’s overall rate of interest. Thus, it would be a perfect time to shift from variable rates of interest to a fixed rate of interest.
Making Wise Decisions
Before consolidating your current student loans to a single one, you should think of an affordable monthly payment. Steve Bucci warns students who prefer extending their study loans. As the loan duration becomes extremely long, you will feel burdened and financially low for a longer period. For instance, you will be forced to repay a student loan for 25-years (this is 15 years more than the initial loan term). Steve states that you should opt for consolidation only if the move would reduce your monthly payments, shrink the loan duration and make you loan-free soon!