The Student Loan Consolidation Process
Pros and Cons of Student Loan Consolidation
College is expensive. Most students don't have the thousands of dollars that it costs to attend college. Even if a student has received grant or scholarship money, it usually doesn't cover all the expenses. That is why many college students become overwhelmed with student loan payments after graduation. If they want to go to college, they have to borrow the money and accumulate student loans. Once out of school, however, it is time to start repaying the loans. At the start of a career, this can be a real financial burden.
Student loan consolidation is a way to help students manage all their various student loans. When students first apply for loans, the money is borrowed at different times from different lenders, each with different interest rates and terms of repayment. With loan consolidation, all the various loans that a student has is put into one convenient loan with one monthly payment. This not only saves time and is less of a hassle, but by choosing a student loan consolidation plan wisely and refinancing at a lower interest rate, it can also save money.
If you are in this situation now, and tired of trying to manage too many student loans with different payment dates, amounts, and terms, you can probably benefit from a student loan consolidation. But before you sign on the dotted line for the first loan you find, it is worth your time to search around for the financial plan that works best for you. The market is competitive, and you want to find the loan with the best rate and best repayment terms that you can qualify for.
Credit Scores and Getting the Best Student Consolidation Loan Rate
The better your credit history, the better the loan you can qualify for. Having a great credit score is often the most important factor to getting the best rates and payments for a student loan consolidation. Lenders look at your credit history and credit score, which they obtain from the major credit reporting agencies. The credit scores are often called FICO scores, as most credit bureaus in the US use software developed by Fair Isaac and Company.
Knowing your credit score and credit information is important if you want to get the best student loan consolidation rate and payment plan. To get the information you need to figure out your credit score, simply search online for FICO and credit scores. With this information in hand, it will help you get the best loan rate and best loan payment terms for your financial and credit situation.
The rates and payment terms for student loan consolidations can vary from person to person. A persons credit and financial situation will often determine the loan rate and term that is offered by the lender. If your FICO score is over 660, it is fairly easy to get a great student loan consolidation plan. If your FICO score is under 600, however, it may be difficult to get the best student loan consolidation rate and plan.
Points to Consider with Student Loan Consolidations
- 1. One Monthly Payment. When you consolidate your student loans, you are lumping all your many student loans into one convenient loan. Instead of making several different payments a month to various lenders, you are only making one. This can be beneficial by saving time and being less of a hassle.
- 2. Lower Monthly Payments. Many students are able to lower their monthly payments by up to 50%, when they consolidate their student loans. While each persons monthly payment savings will vary based on their own particular student loan situation, this is often a benefit of student loan consolidation.
- 3. Lower Interest Rates. Refinancing at lower interest rates can save a large amount of money. And the lower interest rates may apply on many fronts. One, the current interest rates may be lower than they were when you took out your student loans. If you have several student loans at higher interest rates than is currently being offered, you can save money. Also, many students rely on credit cards to pay their expenses in order to keep up with their bills. Credit cards often charge an outrageously high interest rate. If you can consolidate your student loans and credit card bills into one affordable monthly payment, you can save hundreds and thousands of dollars by avoiding high credit card debt. Another aspect is having a fixed interest rate. With some federal consolidation loans, the interest rate can be fixed for the life of the student loan. It pays (literally) to search around for the best interest rate and loan term that you can qualify for.
- 4. Extending the Payment Term. If you have a large amount of student debt, extending the payment period may help make the payments lower and more manageable at the start of your career. With a longer payment term, you will be paying more interest over the life of the loan, but it will give you time to get your career established. With some federal consolidation loans, the term may be able to be extended for up to 30 years. If you start making money you may be able to pay off the loan early, but you would want to find out if the loan has any prepayment penalties.
- 5. In School Consolidation Plans. Some students may be eligible to lock in a low rate for a consolidated loan while they are still in school. While the benefit is a lower interest rate, the drawback is that it puts the student into repayment status. Although payments are automatically put into deferment since the student is still in school, it usually results in the loss of the six month grace period. A possible solution would be to try and negotiate a forbearance for up to a year on the student loan consolidation.
Shopping for Student Loan Consolidation Rates and Terms
With today's technology, it is easy to shop for loans. The internet is a great resource if you want to search for student loan consolidation plans and compare interest rates and payment terms. Many online lenders have websites that offer tools, ideas, information, and some even offer instant feedback to see if you qualify. If you take the time to search around and do some research, you are likely to find a student loan consolidation plan that will simplify your financial situation and save you money.