If only repaying your student loans was as easy as accepting those Federal Stafford loans from the financial aid office! While the loans helped you get through college, paying them back is not quite as easy as taking them out. Interest on student loans can pile-up fast; according to our compound interest calculator a $5000 loan can easily double over 20 years just based on a few percentage points.
What is Student Loan Debt Consolidation?
Consolidation Loans combine several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans.
What Are the Benefits of Consolidating Student Loan Debt?
Depending on the types of loans you have, consolidating your loans offers several benefits. Typically with consolidated loans, you can lock-in really low interest rates. Back in 2003 when I consolidated my student loans, I got the interest rate locked in at 3.2% – not a bad deal. I also was able to then only have to deal with one financial institution and make a single loan payment.
Flexible Student Loan Repayment Options
Most consolidation companies offer different types of repayment plans. Some will have you make the same payment for the term of the loan while other plans may let you pay less in the beginning years of the loan (when you’re probably making less money) and then they will increase the payment amount toward the final years of the loan (when you’re probably making more money).
Ability To Switch from a variable to a fixed-rate loan
If you have any private student loans with varying interest rates, it is possible that consolidating would benefit you by being able to obtain a fixed rate and thus having predictable payments.
How To Consolidate Your Student Loans
Consolidating your student loans is usually pretty simple since most consolidation companies desperately want your business! To consolidate your student loans, you simply need to contact a student loan debt consolidation company and speak to a representative. Before you call, be sure to do a little online research for different companies. Be sure to contact a few companies and shop around for the lowest interest rate you can get. Like I said above, I was able to consolidate my loans for 3.3% which was pretty low at the time.
Once you’ve selected a company, the consolidation company will need the details of your loan at which time they will contact your current lenders, and pay-off the loan on your behalf. At that time you will begin making new payments to your new lender at hopefully a lower interest rate.
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