If you are reading this, it is very likely you have student loan repayment approaching quickly. The fortunate thing is that you have options available for repaying your student loans. One of these is known as loan consolidation, and you will likely discover that it makes perfect sense for your financial circumstance. On the other hand, you may find after checking out the pros and cons and your future career and life plans, that loan consolidation may not be right for you at the moment.
I’m sure you know already that pursuing that undergraduate degree or finishing off that graduate coursework is one of the best things you could have done even though it’s been a ton of work. There have been sacrifices and likely, there is a financial burden now placed on you and your family–but in the long run, your degree will most likely provide a foundation for you to earn more than someone who hasn't earned that credential.
The reason being that a bachelor's degree holder will earn you 62 percent more than someone with a high school diploma says the U.S. Census Bureau statistics. Also, over your lifetime, the gap between a high school diploma and a Bachelor's degree will turn out to be a $1 million plus gulf. It is even better for those who are going after Master's degrees or PhDs: The College Board says you'll also stand to earn more money than those who didn't bother to take the next step.
Chances are that you're trying to figure out how you're going to get by after you graduate - get a good job, take care of your living expenses, pay off the credit card bills, buy a car and begin paying off your student loans. Let this will serve as a source of comfort; no matter how much loan debt you've accumulated, you're not alone. The average for student loan debt ranges from $20,000 all the way up to $40,000.
What is Consolidation?
While loan consolidation process and its jargons can be somewhat complex and confusing, the basic concept is easy to understand: You accumulate all of your outstanding federal student loans into one new student loan with one monthly payment. The new rate is fixed and the length of the loan can be stretched all the way up to 30 years. This lowers the amount of your monthly payments. It's a kind of refinancing of your federal student loans.
Student loan consolidation has increased significantly during the last several years. This is because students and their families have had to take on more financial burden due to a combination of increases in tuition (annual costs rose 35 percent during the last five years) and a decline in the amount of federal and state financial aid, including grants, to students. In other words, this new era is being called "debt for diploma." The result is that, loan consolidation has become such a viable and necessary option. Some 2.5 million students consolidated their loans in 2005.
Not all student loan considerations are the right choice for everyone. First, you first have to realize that extending the length of your loan period lowers your monthly payments but adds to the total cost of the loan. This is due to the extra time that interest on your loan is being charged. Meaning you might end up spending more money in the long run.
A second consideration is that by locking in one rate, you protect yourself if interest rates rise in the future; but if interest rates go down you are still locked in to your rate.
For new federal loans that already have fixed rates, consolidating these newer loans keeps the rate fixed, but they are likely to get rounded up a bit. Finally, agreeing to the terms and conditions of a new consolidated loan means losing all of the terms and conditions of your previous student loans. That's important because some benefits contained within your previous loans might not be included, or may be different, in your new consolidated loan. Carefully read and compare how your original loans stack up against your new consolidated loan.
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