Debt Management: All About Student Loan Consolidation

By MySpendingPlan.com Editorial Staff

Are you wondering how you’re going to manage to pay off your student loans?  Are you worried that you may not be able to make the monthly payments and may find yourself in debt, thus requiring debt reduction assistance?  If so, student loan consolidation may just be the thing for you.

Student Loan Consolidation Explained

A student consolidation loan is available to all those who have taken some form of educational loans.  Whether you have private student loans or federal student loans, you can get your student loans consolidated.

When you consolidate your student loans, you take out a new student consolidation loan which pays off all your other student loans.  Therefore, you have only the consolidation loan to deal with.

There are two types of student consolidation loans:

1. Private student consolidation loans:

These loans enable you to consolidate all the private student loans that you may have taken from banks, financial institutions, etc.  You can also consolidate your federal student loans in a private student consolidation loan.

2. Federal student consolidation loan:

This loan is available to those who have federal student loans in excess of $7,500.  Private student loans cannot be consolidated under a federal student consolidation loan.  Some federal student loans that are eligible for loan consolidation are:

• Federal Perkins Loans
• Stafford Loans
• PLUS Loans
• Direct Federal Loans
• Loan for Disadvantaged Students
• Nursing Student Loan
• Health Education Student Loan

Benefits of Student Consolidation Loans

• Lower interest rates:
  Federal student consolidation loans are available for as low as 2.75% interest rates, whereas private consolidation loans are available at about 8% interest rates.  These interest rates can be much lower than the rates on your different loans.  Thus, by consolidating your student loans, you can take advantage of reduced rates, which in turn will help to lower your monthly payments considerably.  What’s more, these low rates will be fixed for the life of the consolidation loan so you need not worry about rising interest rates.  If you have completed school and have not yet started paying off your student loans (meaning you are still within the grace period), then you may be eligible for an additional 0.60% reduction in interest rates.  This can bring your monthly payments even lower.  Many programs will further reduce your interest rate if you make 2 or 3 years of consecutive on-time payments.
• Principal reduction is possible:
  Many student loan consolidation programs offer a reduction in your loan principal amount as much as 5% when you consolidate.  For example, if you have $20,000 in loans, this means they’ll knock off as much as $1,000 off of the balance!  As long as you keep paying on time and follow their policies, this reduction stays in effect.
• Single monthly payment:
  With a student consolidation loan, you will have to make a single monthly payment towards your loans.  This helps to keep track of your payments so that you can make them on time, which in turn increases your credit score considerably and gives you more credit worthiness.
• No extra fees:
  Unlike other refinancing options, you do not have to pay any added fees or transfer fees when you take a student consolidation loan.

Therefore, if your student loans were taken at high interest rates, you may be able to save a lot of money by going for a student consolidation loan.  However, the rates on some federal student loans are quite low.  So when considering student loan consolidation, make sure you do not end up increasing your interest rates on those already low rate federal loans.