Introduction
 Several
promising life changes occur in our minds when we talk about college
graduation - potential careers, independence as well as new beginnings.
However, even though it means beginning of something, it still
signifies something less enjoyable too - the repayment of student
loans.
As you all know, the repayment of student loans
can be off-putting for both students and their parents. It was found
out by the Public Interest Research Group in the US that the average
debt among student borrowers is currently in excess of $16,500. That
large! The Associated Press also noted that graduates of public
colleges and universities generally emerge owing more than $10,000 for
their undergraduate years alone.
Those who are in private institutions typically
owe $14,000, while the graduate-level students often owe more than
$24,000. What's more for those studying medicine or law? For sure, they
build up even more debt. And, the bad thing is, repaying these debts
are even becoming more difficult for graduates in the midst of
uncertain jobs and the recession.
With the interest rates in all student loan
programs are now at record lows, there is no reason for the graduates
not to consider student loan consolidation. It is often said that with
student loan consolidation, students and graduates can save thousands
of bucks in interest charges.
Now let us look at the things involved in student loan consolidation.
Student Loan Consolidation: A Definition
Student loan consolidation is typically defined
as the procedure or the act of combining multiple loans into a single
loan in order to decrease the monthly payment amount or elevate the
repayment period. There are a lot of reasons behind it, and among those
is money saving payment incentives, decreased monthly payments, fixed
interest rates, and new or renewed deferments.
The Plus Factors of Consolidation
Student loan consolidation has a lot to offer.
That is what many experts often say. To find out what consolidation has
to offer, let's read on.
Overall Interest Savings
Over time, the student loans you have borrowed
have been assigned with different variable interest rates. Note that
the key word here is variable. While the loan you received may have
offered, say, 3.5% at first, the rate will in fact go up as the
interest rates go up. So, if you have two or more of these loans, there
is a great possibility that you may have owed amounts at different
rates, and these rates can rise and fall yearly. Considering that the
interest rates have nowhere else to go but up, it is no doubt a safe
bet that the debt you have accumulated will mount faster than it would
if you consider a student loan consolidation.
It is possible that you can lock your interest at
today's current loan rates and save some bucks over the long haul by
considering consolidation and remaining on your 10 years payment plan.
Aside from that, all of those loans that may have come from different
lending companies or banks can be a burden to deal with. So, if you
consolidate, it means that you only deal with one single company and
one payment rather than several. Other than that, you have the great
chance to receive added bonuses like payment and interest rate
reductions in case you pay your debts on time over a period of months.
These benefits are also possible to come if you have automatically
withdrawn your monthly payment from a checking or savings account.
Improved Credit Score
Borrowers not only save or reduce their long term
debt but can also help change their credit score for the better over
time by considering a loan consolidation. It is worth noting that an
improved credit score is a vital factor when a person enters the "real"
world and wants a new car, apartment or charge card.
Here are some tips for you that can help you as you enter the job market:
- More Open
Accounts, The Lower the Score: Over the student borrower's life, he or
she may have borrowed up to eight separate loans to pay for school.
Each of these loans has a different payback amount, payment terms and
interest rate. The more accounts the student has opened, the lower the
over credit score. Thereby, lowering the amount of open credit lines on
a credit report is needed, but this can only be made possible through a
student loan consolidation in which the older accounts will be combined
into a single account.
- The
Debt to Credit Ratio Matters: As you may know, the credit bureaus
typically find out if you are in debt. They do this by way of
evaluating the amount of your available credit you actually use. So, in
case you have a total of $10,000 available on three credit lines and
you owe $2,000, your score will then be considered higher than
especially if you have maxed out your on credit line with a $2,000
limit. It is worthy to note that if a person has several loans with a
maximum used, it will reflect negatively on his or her credit score.
Given this fact, consolidating the accounts is very important in order
to lessen the number of open accounts being used.
- The
Lower the Payments, the Higher the Score: When the credit report
evaluation comes, it is usual in the process that the amount of the
borrower's monthly minimum payments is taken into account. So, when you
hold a number of loans, every payment is considered part of the
borrower's monthly payment obligation. Those who have considered
consolidation have only one payment to make, which is typically lower
than the minimum amount of the separate, multiple loans.
Returning to School is a Possibility
Many students and graduates left school for
family, career or financial reasons. The odds here are they will want
to return to college down the line. However, if they fail to pay on
their student loans while they are out of school, there is a great
possibility that they can be kept from receiving any financial aid when
they return. So, if financial reasons were part of the primary reason
they left school, it thus implies that digging a much deeper hole will
only make it harder for them to come back.
The loans will also become easier to manage and
pay off by consolidating. And, once the loans are consolidated, you can
retain your right for forbearance as well as for deferment. You can
even take advantage of income sensitive and graduate repayment options
which you may not have encountered before while you're on your multiple
loans.
Hiding from Loans is Impossible
There is one particular truth when it comes to
student loans - you can't hide from them. It may sound extreme though,
but school loans are totally immune to bankruptcy and those students or
graduates that failed to pay their bills face stiff punishments. The
usual consequences are poor credit ratings, garnishment of wages, and
IRS penalties.
Besides, attaining licenses in certain fields is
impossible when you failed to pay off your student loan debts. There is
even a chance that you may be excluded from some government contracts
if you own a small business. With all these consequences, it is then
clear that avoiding a student loan is no way to start a life after
college. If you do come back and take out more and more student loans,
you will be able to consolidate again after graduation.
In the end, about half of the students coming out
of college have in fact gained their degrees. Of course, it can be
tough to remain and stay in school with financial burdens, and it is
harder to come back. But, thanks to student loan consolidation that
creating one less barrier to coming back to school and keeping your
credit rating clean is now possible.
The Right Period to Consolidate
In the government consolidation loan program, it
is interesting to know that there are in fact no deadlines connected to
it. It is supported by the fact that you can apply for the student loan
anytime during the grace period or even on the repayment period. But to
consolidate student loans, some considerations must be paid attention.
To consolidate student loans, you should know that it generally take
place during your grace period. At this moment, the lower in-school
interest rate will then be applied to estimate the weighted average
fixed rate to consolidate student loans. And once the grace period has
ended on your government student loans, the higher in-repayment
interest rate will be applied to estimate the weighted average fixed
rate. Given such process, it is then understandable that your fixed
interest rate for government student loan consolidation will be higher
if you consolidate student loans after your grace period.
And when you are interested to consolidate
student loans, you should know that even of your student loans are
already in repayment, to consolidate student loans is still allowed and
advantageous. It is for the reason that when you consolidate student
loans at this time, you already fix the interest rate on your
government student loans while the rates are still originally low.
Conclusion
As presented, student loan consolidation can help
most borrowers in many ways. But, it is still necessary to note that
rates won't actually stay low without end. In fact, they are so low now
and the only place for rates to go is up. So, if you are on your way
out of college, saving every cent you can in today's tough job market
is worth considering. And, regardless of the situation you are in to
right now, consolidating your college loans is a practical decision.
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