Why Consolidating Student Loan Debt is the Most Constructive Option
By graduation, most students face huge college debts and pressure to repay them. When student decide on consolidating student loan debt, the task is made easier by lessening the debt to a more manageable form.
The fact is that managing college debt repayments independently is little more than a major headache. Why? Well for a start, the debt is usually made up of a number of individual loans, and the terms and repayment schedules of each can vary dramatically. By turning to a consolidation program, the headache is effectively removed.
Still, there are aspects that need to be carefully considered, with an array of advantages and disadvantages associated with clearing student loans in this manner. The best option comes down to a number of factors.
How Consolidation Works
The word consolidation relates to the idea of grouping things together in order to become stronger. So, consolidating student loan debt is all about taking individual debts accrued in college, grouping them together and then taking control of them. The end result is a single loan used to buy out the combined remaining balances of the loans.
There are clear benefits to be enjoyed by this tactic, not least being the fact that the repayment schedule is simplified so that managing college debt becomes easier. If there are four loans, there are four interest rates pushing the overall cost of the debt higher than it should be. The consolidation loan requires a lower monthly repayment.
And since the individual student loans are repaid in full, the credit score of the student is improved. This is a residual advantage that means future loans can be secured at more affordable terms.
Consolidation Program Options
College life may be cheap, but there are still real expenses to the face, not least rent, grocery bills and utility bills. As well as living expenses, there are the significant tuition fees that colleges charge for attending their institution. Between the two, a student can require several loans to survive. This is an important fact when consolidating student loan debt.
There are two types of loans that students can take out; namely, private and federal loans. This means there are also two types of consolidation programs to consider, with private programs designed to deal with private loan debt, and federal programs for federal loan debt. Managing college debt effectively depends on which loans were taken out and which consolidation program is required.
Federal programs offer low fixed-rate interest charges and extended periods of grace, whereas private programs tend to be more expensive. This is principally because a profit needs to be made by the lender. Still, consolidating these student loans produces the greatest benefit.
Disadvantages Of Consolidation
There are some negatives to consolidating student loan debt. The period of time required to clear the consolidation loan can be extensive. For example, instead of taking 10 years, it can take 25 or even 30 years. It depends on the size of the debt of course, and it does lower the monthly repayments.
However, managing college debt in this way also means that a very large amount of interest is paid over the lifetime of the loan. This effectively raises the cost of the loan, and when seeking a home loan or auto loan later on, the existing debt will affect the debt-to-income ratio that is so important to lenders.
Still, if clearing the student loans in this manner is the most affordable solution to the debt problem, such inconveniences are minor in comparison.
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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