Consolidating College Loans: 3 Steps To The Best Deal
Clearing the debt created by student loans while in college is not easy.
Often, the debt sum is over $50,000, which is a huge amount for those
just graduating or still studying. But by consolidating college loans,
it is possible to greatly reduce the financial pressure, and take
control of the debt.
Of course, the hope is that any new loan structure will translate into a
new low interest rate that will wipe thousands of dollars off the money
owed. But the new structure is focused on making an immediate
difference, with monthly repayments too high to meet.
It is also worth keeping in mind that college loans are just like every
loan - they can be dealt with effectively if the right steps are taken.
Why Consolidation is a Good Move
The advantages of consolidating college loans make the effort put into
selecting a good deal well worth it. With such a high level of debt to
manage, the challenge is to reduce the due monthly repayments to a much
more affordable level. This can mean a complete restructuring of the
existing loan.
Consolidation by definition means bringing together a number of elements
so as to reorganize or strengthen a position. When it comes loans, it
means buying out the existing loans and replacing them with one single
loan. Because there is now just one debt, one single interest rate is
charged, which is a low interest rate compared to the combined
individual rates originally charged.
However, it is important not to confuse the types of college loans that
are being consolidated. In most cases, it is not possible to mix those
loans secured from private lenders, and those secured from the federal
government.
Private Loans vs Federal Loans
It might seem a little unfair that one type of loan cannot be combined
with another when consolidating college loans, but there is sound
reasoning behind the rule. For a start, both types are available on very
different conditions and so it is complicated to ensure that an
advantage is enjoyed from the consolidation process.
With private loans, for example, the interest rates are typically higher
and the terms less beneficial. So, to consolidate these makes perfect
sense with private lenders offering good (though no ideal) terms. The
rates charged are not very low interest rates, but they are lower than
the combined interest paid. Usually, the term of the loan is extended,
and this is what makes the repayments more affordable.
With federal loans, however, the interest rate charges is very low,
since the loan is guaranteed by the government. This advantage is lost
if these college loans are bought out by a private consolidation loan.
Thankfully, there are public consolidation loans available.
Knowing What Lenders to Choose
When consolidating college loans, the best place to find a lender is on
the internet. It is generally true that online lenders offer the best
terms. But there is always the need to check out the lender if they are
being sourced online. Check out the Better Business Bureau website to
make sure their reputation is good.
When seeking low interest rates, the shorter the term of the loan the
better, but the reality is that low monthly repayments are what make
consolidation loans work so well. The rate can be very good, but
remember that the sum of interest paid over the period of 20 years
rather than 10 years is going to be more.
Federal loan consolidation deals are much more affordable, but when
clearing these college loans be sure to read the small print, and to
know the details of the agreement.
