Why College Loan Consolidation Works, and How to Benefit

Arguably a bigger challenge for college graduates than finding a well-paying job is actually clearing the debt they have accrued while in college. To this end, college loan consolidation is usually the best course of action to take.It might seem that clearing debt and securing employment are inextricably linked (and they are) but when the prime motivation is paying off loans, then it does take from the aim of starting on a career ideally. This kind of distraction can be costly, but by taking sensible steps towards consolidation, managing college debt becomes easier.It is important, of course, to know the ins and outs of the options available before deciding on a source of action. After all, what might seem like the most expedient way in which to pay off college loans, may prove to be more damaging to a financial status.How It WorksThe principle of consolidation is to bring everything together so as to create a stronger or more assured status. College loan consolidation offers a chance to pool the debt from numerous loan agreements together, replacing it with one more affordable debt.This is done by buying out each of the existing loans through financing from one loan source. So, for example, if three loans add up to a total of $40,000, one single $40,000 loan is secured to buy out each of them. The combined interest rates of those three loans may mean repayments of $1,000 per month, whereas the repayment from the single loan is perhaps $650.This is the chief trick to managing college debt effectively, but it is important to realize that not everything involved is positive. There are some compromises that must be made, though the overall benefits of clearing college loans in this way make them hard not to accept.Compromises to MakeThe reality of any college loan consolidation agreement is that the lifetime of the debt is extended. This is in order to ensure that the monthly repayments due are less than the combined repayments of the individual old loans. But what this means is that the amount of interest paid over the loan lifetime is much higher.For example, the three existing loans may be $10,000 over 3 years, $15,000 over 4 years and $15,000 over 5 years, requiring a combined repayment sum of $1,000. However, repayments on the $40,000 loan may become as low as just $400 if the term of the loan is 20 years.While managing college debt in this way guarantees affordability, it also guarantees a high amount of interest repaid. This is the main negative to any consolidation agreement, but since the college loan is eventually cleared at what is a very low monthly repayment sum, the benefit is not lost.Other Factors to ConsiderOf course, it is also necessary to consider the specifics of any existing loans before seeking college loan consolidation financing. In effect, this means understanding specific conditions of those loans that relate to consolidation.For example, the Perkins loan has conditions that state a consolidation agreement cannot be struck without at least one direct FELP loan to combine it to. This depends on whether or not the particular loans are publicly or privately awarded, with federal government loans usually having such conditions. Privately issued loans from banks are more open to managing college debt using consolidation.The details of these agreement should be carefully examined, however, with the overall costs needing to be assessed. However, the ability to clear college loans - albeit over an extended period of time - is very tempting.