Is Consolidating Student Loans a Good Idea?
Student loans operate under certain rules. Among other things, they can be consolidated more easily than any other type of loan, though rules also apply to this consolidation process. In general, someone with multiple student loans should try to consolidate with an official lender. If properly handled, student loan consolidation can bring welcome financial relief.
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Loan Consolidation
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Loan consolidation is the act of merging different loans into one primary loan. Different loans with different amounts and different plans are bundled together in one package that has only one overarching amount and a single payment plan. Different interest rates are also combined into a single rate, usually a fixed rate.
Sources of Consolidation
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Many companies and lenders offer consolidation programs. When it comes to student loans, the primary source of consolidation options is the federal government, which works through large lenders like banks to offer payment plans for subsidized and unsubsidized loans alike. Generally, a borrower should try to consolidate loans with plans from either the government or these large banks, since these plans are likely to be fair and dependable.
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Benefits
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The basic benefit to consolidation is a reduced monthly payment. The plan not only combines all the loans and interest rates, but creates a single payment that should be less than the sum of all the previous loan payments. If not, then the plan should be avoided. The plan may also offer a slightly higher fixed rate, but this may be worth it if the existing loan is large and at a variable rate.
Eligibility
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Most official consolidation programs of the government and large institutions first require the borrower to meet certain eligibility requirements. The borrower must have already begun repaying or recently graduated; the loan amounts must exceed $7,500 in all; and the loans must be from more than one lender.
Avoiding Consolidation
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Avoid consolidation plans from companies that are not large lenders or want to consolidate more than just student loans. Many companies looking to make money from fees will try to get borrowers to consolidate credit card debt, mortgages and many different types of loan payments. Student loan consolidation is more dependable than these other comprehensive versions.
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References
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