Consolidating College Loans: 3 Steps to the Best Deal
The popularity of consolidating college loans is understandable, especially given the high level of debt that college graduates are faced with. However, there are certain factors to be considered before agreeing any deal.
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.
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ABOUT THE AUTHOR
Devora Witts is a certified loan consultant who helps people get approved for Loans for People with Bad Credit and Bad Credit Mortgage Loans. To get aid with your financial situation you can visit her at http://www.badcreditloanservices.com