Student Loan Consolidation: Is it a Good Choice?

Hard times and an ailing economy have many people asking if consolidating their student loans is a good idea. You may wonder if it is going to look bad on your credit. Loan consolidation is simply a way to manage student loan debt and is not the same as defaulting or not paying. So, no, consolidation is not considered bad on your credit.

Most people that think it is a bad move for credit reasons think this because lately other "debt consolidation" advertisements have people inquiring about getting rid of some of their debt. These services do not only consolidate debt, but try to get debt "forgiven" by lenders, which does have a negative impact on your credit rating.

Student loan consolidation is different. You can even "consolidate" one student loan or private student loan. Consolidation generally refers to combining more than one debt into one new loan, but it basically student loan consolidation is just a new loan. You can consolidate one student loan into a new one, extending the term and lowering payments, getting the same benefits as if you had consolidated more than one student loan.

Consolidation can actually look good on your credit because it will show the loans that you consolidated as "paid". Paying off loans in full can be good for your credit score. Plus, when you consolidate, you no longer have multiple payments due throughout the month. You are left with only one payment. This payment is a set amount due on the same date each month. Because things are simplified, you are far less likely to make a late payment or miss a payment, which looks really bad on your credit. Because the payment is lower, you are more likely to be able to afford the payment, which also makes for a better credit score.

You may be able to take advantage of the bad economy right now. Consolidation loan interest rates have been being cut. You can get some great interest rates during the country’s financial time of need. Consolidation loans also generally have fewer rules attached than your original student loans or private student loans did. You could enjoy such benefits as no prepayment penalty, one payment per month, lower payments, lower interest rate and other freedoms not allowed by your student loans.

Some lenders are offering other enticements such as graduation bonuses, career choice incentives, military benefits and deferment terms. You can easily compare consolidation loan benefits from many different lenders on web sites that offer student loans from a variety of sources.

About the Author: Evelyn Saunders, a retired teacher, is the editor for student-loans.net, a provider of student loans and information on how to get private student loans as well as consolidation. For more information, please visit http://www.student-loans.net.

Consolidation of Student Loans

Student loans can be consolidated to reduce payments, fix interest rates and extend the life of the loan. Certain loans can be consolidated, including Stafford Loans, Federal Perkins Loans, and PLUS Loans. Although extensions of loans through consolidation can increase the total amount paid by the end of the loan, it can offer some financial relief and simplification of payment plans to student loan customers.
Stafford Loans are offered to students at a lower interest rate than most loans. Eligible students can enjoy delaying payments until after college. Subsidized Stafford Loans are given on a financial need basis. The government pays the interest on subsidized loans during the time that the student is enrolled in school. Unsubsidized loans accrue interest while you are in school and you are responsible for the repayment of this interest. Stafford Loans, subsidized and unsubsidized, can be consolidated into one loan with a fixed interest rate. This will generally extend the life of the loan, but can offer relief from high payments. Consolidation also helps simplify your payments, so that you can make only one payment per month instead of multiple payments with varying due dates to multiple loans.
The Federal Perkins Loan is subsidized by the government like a subsidized Stafford Loan. The government pays the interest that accrues on the loan during the time that the student is enrolled in college. Keep in mind that you must be enrolled at least half-time to qualify. The Stafford Loan has a six month after graduation or withdrawal grace period in which repayment does not begin. The Federal Perkins Loan has a nine month grace period. The Federal Perkins Loan has a special provision for teachers. Teachers may be able to cancel part of the amount that they owe on their Federal Perkins Loans. Teachers can qualify for a percentage of their loan to be cancelled for each year that they teach in special low-income schools, or in areas where there are teacher shortages. The Federal Perkins Loan carries a fixed interest rate of five percent and has a ten year repayment period. This repayment period can be extended through student loan consolidation.
PLUS Loans are sometimes referred to as parent loans. They can also be obtained by graduate students and students in professional study. Unlike Stafford Loans and Federal Perkins Loans, PLUS Loans do not have a grace period. Payments may be immediately due after the loan monies are dispersed. PLUS Loans usually have higher interest rates than Stafford Loans or Federal Perkins Loans, but they are generally not as difficult to qualify for. You are not required to have a financial need to qualify for a PLUS Loan, but you will, however, need to have good credit to qualify. Repayment plans are not as flexible with PLUS Loans, so many people turn to consolidation if they are having trouble repaying the loans.
Many students end up with Stafford Loans, Federal Perkins Loans, and PLUS Loans to repay. Students can now consolidate all of these loans into one easy to manage loan. Most student loans must be repaid within about ten years. But, with consolidation, you can extend the repayment period of these student loans for up to thirty years. This can make student loan debt a lot more manageable and repayment more attainable.

Consolidating Student Debt

Many students go through college not realizing how much money they’re spending. You can easily rack up a hefty amount of debt, just by charging a little here and there. Lots of students don’t take their credit card balances very seriously. They look at the minimum amount due and blow it off as just a small bill to pay. Even worse, they may not even consider this minimum amount as pressing, paying their regular utilities and other bills first. This can lead to credit card neglect. Student loans have a set amount due each month. This makes paying off the debt easier to attain.

Your credit card payment and student loan payment has to be made on time, every time. Late payments can stay on your credit report for years. Late fees are tremendous and your interest rate can go through the roof after one late payment on a credit card. Suddenly that great deal that you signed up for is gone and you’re stuck paying the maximum amount of interest and late fees on an ever-growing balance.

Keep up with your bills. Show some restraint when you need to use your credit card. Don’t use it for anything that you just want. Only use it for real emergencies and make every effort to come up with cash before you decide that you have to use your credit card. If you take out a student loan, only take out the amount that you need.

Call and set up an automatic payment plan with your creditors. Determine when you want your balance to be paid off and pay a set amount every month to achieve that goal. Student loans generally have this plan in place already.

Come up with an exact strategy to get your debt paid off. Debt consolidation could be an option if you have more than one credit card or loan out there. Basically, you combine all of your balances on to one bill. Get rid of extra credit cards so that you’re not tempted by them sitting in your wallet with a high limit of available credit.

When consolidating your debt, look for special student rates. Find a plan that has a low interest rate and the lowest fees. Once you’re debt is in one lump sum, then your payments overall can be lowered. You’ll have one amount due as well as one due date to keep up with.

Students find it very hard to have self restraint when it comes to shopping, eating out at restaurants and partying with their friends. Try to train yourself to save just a little each paycheck for times like these. Don’t turn to a life of debt and struggle just to go grab a sandwich with your friends or buy yet another pair of jeans. Become a bargain hunter and only take cash with you. You’ll reap the benefits and teach yourself some responsibility. Be proud of the money that you save and pay as much as possible to your credit card or student loan bill as often as possible. Every little bit counts when you’re getting yourself out of debt.

About the Author: Evelyn Saunders, a retired teacher, is the editor for student-loans.net, a provider of student loans and information on how to get private student loans as well as consolidation. For more information, please visit http://www.student-loans.net.