The rising cost of tuition and other college expenses has steadily increased the amount of debt upon graduation. This increasingly becomes apparent as students approach graduation and lenders begin issuing monthly repayment notices. Combined with an unstable job market, monthly loan repayments can be impossible for many.
Although loan consolidation may appear to be a likely option, students must consider both the benefits and consequences of student loan consolidation before entering into a binding agreement.
If a student has not graduated and entered into repayment, consolidating their loans at this point has a major disadvantage. Most student loans offer a grace period of at least six months after graduation. However, consolidation while in school means the grace period is forfeited and repayment begins almost immediately.
Unless students have a guaranteed job in the near future that can cover their monthly payments, they may find themselves defaulting on their loans shortly thereafter.
Students with both private and federal student loans cannot consolidate all of them into one payment. Federal loan consolidation offers two types of programs, a traditional and special consolidation program. The major difference between each is that under traditional consolidation, the original terms of each loan no longer exist.
All eligible loans are essentially reissued as a new loan with new terms, and the borrower must repay under these terms. Students with specific types of loans may be able to consolidate them under the special consolidation program. With this program, some of the original terms may be kept intact throughout consolidation.
Consolidating private loans can have drastic variations in their repayment terms. Some private lenders allow consolidation at a fixed or variable rate of interest. Those choosing to repay a fixed rate may pay higher monthly payments, but they will remain unaffected if interest rates increase in the future.
Although the payments are higher, this allows the most security. In contrast, a variable interest rate may seem ideal since the monthly payment is usually lower. However, if interest rates substantially increase, borrowers may find themselves unable to afford their monthly payment. Unlike federal consolidation programs, interest rates are not capped at 8.25%.
Although the reduction in monthly payments can be tempting, the long-term costs are often higher. Borrowers should only consolidate their loans when it is absolutely necessary. The opportunity to extend loan payments by ten years in exchange for a lower monthly payment often means the borrower pays a higher total cost. Some loan consolidation programs also charge a penalty for finishing loan repayment early.
There are many things to take into consideration before consolidating student loans. In general, if a borrower can make monthly payments on their loans without a severe impact on their daily living expenses, they should not consolidate their loans. Otherwise, consolidation may be a reasonable option.
This is a guest post by D. Maria Fortie. He’s a dieting college pro and produces content for the blog Nutritioncertification.net about nutrition certification programs online. She suggests some ideas to help students find the right online degree nutrition or provide assistance to men and women who want to be a dietician or get a new profession in the nutrition field.