Tips to consider before choosing Federal Student Loan Consolidation

Most students look up to graduation as a time when they should leave college and join a new life of employment and fulfillment as they harvest the fruits of hard labor. Unfortunately, immediately after the big day a harsh reality dawns on them: they find massive loans to be repaid with a very feeble job market. Defaulting loan repayment can easily ruin a graduate’s financial life even before he begins to make ends meet. This only leaves a fresh graduate with one option: he must make plans to pay off the loans taken while in college. Students may choose from the many available options of loan repayment to fulfill this. Some may however choose Loan consolidation as their option. This is the act of centralizing all the loans amounts and their different interests into one monthly bill to ease the repayment. This method may look very appealing to prospective graduates but it is important that they know the pros and cons of making such a move. Let us first examine the pros of Federal Student Loan Consolidation.

Multiple Loans From Different Lenders

First, for a student that took multiple loans from different lenders, consolidation gives them the opportunity of centralizing all their loans so that the repayment process is simplified. Besides, consolidation helps borrowers to have a prolonged repayment period which reduces pressure on students who could be struggling to obtain one is earning around n work to do. For instance, if one is earning around $ 60,000, he can easily obtain up to 30 years of repayment period! This could be the main reason why people choose to consolidate.

Secondly, when one chooses to consolidate loans, he can be eligible for possible loan forgiveness and much more than that, he can also access income-based loan repayment. Even for people with private loans, opportunities for lower interacts rate can be given for those with improved credit score. This can equally provide a bargaining power for negotiation with the current loan holder to better terms.

Disadvantages of Federal Student Loan Consolidation

Nevertheless, Federal Student Loan Consolidation has its own disadvantages. These include: After obtaining a diploma, it may not be a wise decision for a student to stretch out the repayment period to be longer. Although with it comes lower interest rate, through the prolonged period, students may end up paying more in interests. Before engaging in any deal, students need to ask and understand the terms. For instance if one pays $600 per month, it sounds better than paying $800. But paying $600 for 20 years makes one to pay $12,000 while paying $800 for 10 years makes one to pay $8,000! So, selecting a longer repayment period can make you pay more by $400! So, be wise.

For those with a misconception that consolidation compares to refinancing your house for a better rate, you need to discover that it used to be true when people used to borrow at variable rates which are no longer the case. With the fixed rates set by the law, consolidating doesn’t make things better!