What Is A Student Loan Consolidation Program

A student may have availed of several government-funded student loans, plus, say, a private loan. When the time of paying comes, he will have a very difficult time keeping up with and recording the different payment schedules and schemes. But if he combines the four outstanding loans into one, sets up a unified payment scheme and terms, he will have to go to the bank only once a month to pay. Or even not at all in some plans. This is called loan consolidation, and plans specially dealing with this method are called student loan consolidation programs.

The Benefits

Student loan consolidation programs offer some distinct benefits. First is convenience. A student with three or more loans needs to keep three or more payment records, which translates to more hassles and paperwork. There is thus the greater chance one or a few payments may not be made on time, compounding the problem. One payment schedule, however, significantly reduces the difficulties, enabling the student or graduate to concentrate more on his career.

The second benefit is savings. Consolidated outstanding loans usually charge lower interest rates, and even offer additional incentives such as reduced payments after a time. This means some money saved, however little, especially for young people just starting their careers. And of course, there is that savings from not going to the bank every so often…

The third is flexibility or new opportunities. The payment schemes for the particular student loan consolidation program can be negotiated to better fit the conditions, exhausted deferments may be reapplied, or innovative terms tried. Sometimes, a more personal touch works much for a more preferential treatment.

Government Or Private?

A private student loan consolidation program may consolidate government and private loans, but a government student loan consolidation program will not accept private loans.

Therefore, if you have a combination of several government loans and private loans, you can only consolidate the government loans. Whether you can consolidate a private loan, or consolidated private loans, with an already consolidated government loans, have not been specified in the information given out by the various sources.

Government student loan consolidation programs also lock up charged interest to rates prevailing at the time of consolidation; while private programs commonly adhere to the LIBOR + formula, meaning the rates of London Inter-Bank Offering Rate plus a tacked-on percentage. And of course, the LIBOR fluctuate so rates vary from year to year. There is thus no assurance for private student loan consolidation program payments to be the same all throughout the payment timeframe.

Furthermore, private student loan consolidation programs may charge upfront fees such as for processing, additional charges, hefty late-payment penalties, and others they may have explained or not, or hidden in the small print of the contract. Many banks consider needy students fair game. On the other hand, there are private fund sources that are easy to talk with, such as non-profit and philanthropic organizations …

Many government student loan consolidation program implementors may grant additional benefits such as federal subsidies on interest on a deferment period. It simply means the government shoulders the interest on a loan when the payments have been deferred for particular reasons.

Federal student loan consolidation programs are therefore preferable, until the government approves the Higher Education Act, which will make federal student loans subject to fluctuating interest rates.

Your choice.