Try to imagine this, a fresh graduate is thinking of ways by which he/she can repay 16 different types of Federal loans worth 100,000 USD! Doesn’t this sound like a tedious task? If it wasn’t enough you have to utility bills, shopping expenses and many other costs to the list. In case of almost all Federal loans, unsubsidized or subsidized, you should be prepared to make monthly payments at its very own interest rate. Keeping track of many loans is easier said than done. In fact, every month you have to sign multiple different cheques. This is why famous financial experts like Mark Kantriwitz recommend loan consolidation. As suggested by its name, student loan consolidation would convert multiple loans to a single one! This solves several problems and gives you a single perfect solution.
Before you engage in student loan consolidation, you must understand four important things.
Do you know your loan?
First of all, you should know what you owe and why you owe it. Most borrowers are not aware of anything other than their loan balance! If you are a part of this group, you are certainly in for big trouble. As a borrower, you must know everything about your loans. Find out the rate of each and every loan you have. Check if the loans are fixed or not. During consolidation, your final interest rate will vary drastically. As a result, you may end up paying more interest. This is why you should know your loans in depth.
Does the option have benefits?
Secondly, you must be aware of the loan’s benefits. Always remember that loans have customized benefits. Some will let you benefit from forgiveness, while other will let you opt for loan deferment. The final list of benefits will depend on the loan you borrow. Consolidating the wrong loans at the wrong time will eradicate all these benefits. For instance, consolidation will taint the benefits of Parent PLUS loan. So it’s better to think twice before you combine certain loans.
Is it your only solution?
Loan consolidation may not guarantee savings at all times. Of course, consolidation will merge several loans to a single one. But, this must not be your only reason towards consolidation. If this is the only reason you have, then it might not be the best solution! This is a statement declared by Mayotte from the American Student Assistance Department. Federal loan consolidation may increase your monthly payments in the longer run. Meanwhile, the smart move may reward you with many other benefits like extended loans, reduced monthly pays and better forgiveness options.
The Bottom Line
On the whole, loan consolidation is a strategic move that works for some and fails for others. Weight your benefits and risks before consolidating your loans. As potential graduates, your decisions should revolve around long term benefits. Always bear in mind that good decisions will increase your financial possibilities in the long run. On the other hand, graduates from special courses like social work must be very careful. This is because their salaries will not increase drastically every year.