Introduction
Now more than ever, the world has become in a grassroots that its not developing so fast like the use of technology so higher education is very crucial. Another theme that appears during the life of the student at this stage is the stress problems and requirements of financial responsibilities. The ability to take out student loans appears to be the most realistic choice for many, however handling multiple loans, different interest rates and numerous lenders, may be a real problem. This where student loan consolidation comes in handy. Therefore, purpose of this article is to answer the question – how to consolidate your student loans and is it good thing to do?
What does Student Loan Consolidation mean?
Student loan consolidation is defined as the process of taking several federal education loans and bunching them into one loan with a certain interest rate. It is because when you consolidate your loans, you combine them into one and make paying them back less confusing. Walking the loan term back, for repayment, may thus reduce monthly installments. It also determines the interest rate which helps you avoid any fluctuation of the interest rates hence help in financial planning.
Is Now the Right Time To Consolidate Your Loans?
It is important to learn the tricks for managing your money and know when it is right time to merge your student loans. It is unwise to consolidate early in the course of your repayment period because you stand to lose on the goodwill of having your interest rates reviewed if you apply for the loan forgiveness or income-driven repayment programs. It is best to combine if you have many federal loans that have differing interest rates, variable rates which chases you all over or have payment mature dates that you cannot possibly meet.
Advantages of Student loan Consolidation
1. Fixed Interest Rate: Perhaps one of the primary advantages of refinancing student loan is a fixed interest rate. This protection keeps you from fluctuating and unpredictable markets which can them interfere with your funds and spending.
2. Simplified Repayment: Debt management of diverse loans is made easier when they are merged into one single loan. This means you will never have to stress regarding having many due dates and many lenders whom they owe money to.
3. Lower Monthly Payments: Though, the repayment term might be extended in order to have a smaller monthly payment and the pressure in the budget will be relieved. Nevertheless, do not forget the fact that by adopting longer loan term, interest rate for the same loan amount over the given period will be higher.
4. Single Servicer: This makes it easy for you since all your loans are managed by a single servicer. For any query, concern or help related to loan management, you would get in touch with only one common point of contact.
5. Eligibility for More Forgiveness Programs: When you join your loans, there may be options for forgiveness programs that may apply to you including Public Service Loan Forgiveness and Teacher Loan Forgiveness. Before consolidating, it always pays at least to consider your options.
How Federal Student Loans are Consolidated
1. Determine Eligibility: To consolidate federal loans you have to have at least one Direct Subsidized, Direct Unsubsidized or Direct PLUS loan.
2. Choose a Repayment Plan: Choose the payment schedule that’s meant to align with your conception of personal finance. Actually, there are different types of student loans repayment plans today and they include standard repayment plan, extended repayment plan, graduated repayment plan and income driven repayment plan too.
3. Fill out the Application: To apply for a Federal Direct Consolidation Loan, you’ll need to fill the application available at studentaid.gov. You have to provide details about the current loan — including balance and interest rates.
4. Select a New Repayment Plan: When your loans have been consolidated into one loan, you then choose the right repayment plan for your loan. This option gives you basic plan or an income-based plan if you wish to have smaller monthly payments.
5. Sign Promissory Note: The last procedure is to complete and sign Master Promissory Note which is a contract between you and the federal government to reimburse its money.
6. Check Loan Servicer: Your loan servicer will be informing you about your repayment options within 30 days that the consolidation was approved.
Private Consolidation of student loan
While federal loan consolidation has lots of advantages, private student loans cannot be consolidated in the same way. Nevertheless, the same benefits may also be obtained from refinancing of private student loans. The act of repaying one or more liabilities by means of incurring another and different liability is called refinancing usually at the lower interest rates. It can make repayments easier and can to lower how much interest you will be paying. Learn everything that you need to know with regards to interest rates, terms of the loan, and even the qualifications for refinancing in order to get the best of the best.
Conclusion
Student loan consolidation and refinancing have proven to be highly effective strategies of dealing with your student loans in a much easier way. There are other ways in which they can help you even pay off; you can get some form of financial relief as they give cheap installment and low interest rate. However, the economic situation should be assessed and then all the possibilities and solutions should be analyzed and the most effective solution to the individual problem should be used. Now, having gone through this guide, you now have the tools to properly approach your student loans and you are well on your way to beginning the process of elimination.
