It is important to understand the difference between student loan consolidation and refinancing. Federal student loans can be consolidated
Student loan debt consolidation is a way for students to combine many of their student debts into one. However, it might not be the perfect solution for everyone. It definitely has pros and cons.
Understanding how student loan debt consolidation works before getting into anything serious is crucial.
General Knowledge about Student Debt Consolidation
Using debt consolidation for your federal student loans will result in the lender bundling up all or a portion of you current loans into a Direct Consolidation loan, which amounts to the total balance of your previous loans.
The debt consolidation loan has a fixed-rate on interest, which is calculated by using the average interest of your loans collectively. You can then pay off your previous debts with the money you receive from the debt consolidation loan and then pay off the current loan on a monthly basis.
Student loan debt consolidation stands out amongst the crowd as it is one of the only loans that offer a few perks and benefits to you:
You do not need to worry about your credit score in order for you to qualify for this specific loan.
There is no maximum limit which means that you can sort out your debt more efficiently.
Payment deferral is less detrimental than any other loan.
Debts can further be dismissed if the borrower passes away when consolidating certain student loans.
What are the Benefits of Student Loan Debt Consolidation?
Some of the key factors to focus on when choosing this option is:
Reduced monthly payments: Student loan debt consolidation can give you more time to pay back your loan. Sometimes it can take up to 30 years of payment. This benefits you, as you will have a lower amount of money to pay each month.
Fixed interest rate: Yours will be consistent during the whole term of the loan, which helps to prevent irregular payments of varying-interest loans and will make it simpler to financially plan for future payments.
Single monthly payment: You'll just need to write one check every month to a single loan service, instead of paying many checks to different creditors or lenders.
Easy payments during difficult times: Debt consolidation will allow you to be approved for an income-driven payment plan or forgiveness on your loan or debt. This will allow you to dramatically reduce your payments when you are suffering from financial stress or can’t manage to pay off the initial amount properly.
Based on your financial situation, these benefits might or might not appeal to you. If you aren’t concerned about the increase in interest rate, the loan is taken with a fixed rate in interest. Sometimes the interest rate is a lower amount than expected but it can sometimes be higher than the current amount you are paying. If you can afford the monthly payment, this will be ideal.
When to go for Student Loan Debt Consolidation
You can obtain a Direct Consolidation Loan after your graduation, when you leave school, or even drop out of college early. Nevertheless, the student loans that you wish to consolidate should either be in reimbursement or within a window period.
The most appropriate time to acquire student loan debt consolidation depends on a few key points:
Revenue Security: The reimbursement of the debt consolidation loan usually begins at least 60 day within the time that you receive the money. If you cannot afford to pay even after the graduation, then it’s best for you to wait it out for a time that you can afford to pay off the debt consolidation.
Budget: If you have other things to take care of after school such as running a household, then you might want to get a loan that has a longer payment plan. That way you would be spending less by paying a lower fee.
