The Pros and Cons of Student Loan Consolidation

A student loan consolidation is a great tool, which allows most borrowers to merge all of their federal loans into one new loan. What are some of the benefits that can be realized from having a student loan consolidation? Listed below are some of the pros of a student loan consolidation.

1. A student loan consolidation may be able to reduce your monthly payment by up to 53%.

2. It may simplify your finances by allowing you to have only one monthly payment each month.

3. A consolidation may also improve your credit rating.

4. The rates may also be lower than they were when you first obtained you student loan, which will give you a chance to get your loan locked in at a lower rate.

5. Last but not least, because your repayment can be spread over a longer time period, your monthly payment amount will be lower.

Things to consider when getting started are that you may not need to be employed to consolidate your loans. No collateral of any kind may be required, you may not need a cosigner and, you may be able to get your application started online.

In most cases your interest rate may be a rate equal to a weighted average of the interest rates on your existing loans rounded up to the nearest one-eighth of one percent. In addition most Federal Consolidation interest rates are determined based on the average of the currently existing student loan interest rates, which are on the books at that time.

Why is it important that you consolidate within your grace period?

If you are a borrower who has a variable rate student loan and it was taken out on or before July 1, 2006, you will still be able to gain many considerable benefits from lowering your interest rate thorough a student loan consolidation. Most people who decide to lock in a rate during their grace period are offered a discounted rate, which can save them hundreds if not thousands during the term of their loan.

Keep in mind that some Federal and direct consolidation loans cannot be reconsolidated unless you are intending to include some additional loans in with the new consolidation. As an example, if you consolidated your federal loans after your undergraduate degree, and later wanted to consolidate your graduate loans, you would then be able to qualify to combine the new loans with those that were reconsolidated.

Private loan consolidation

Private loan consolidation may not be a bad idea, however if you are considering combining your federal and private student loans, the end result will be a consolidated private loan. This is bad for many reasons. If you later decide that you want to go back to school, you will not be able to defer the payments. In the event that you were to have any form of economic hardship, you would not have the option to seek forbearance with a private student loan consolidation.

Last but not least, you will not be able to write off any of the interest as a tax deduction with a private loan consolidation.