A student has the option to combine several federal loans into a single loan. This is called as consolidation of the loans. Consolidated loans have lower interest rates and higher repayment periods.

There are several finance organizations and banks that come forward to consolidate existing loans. The particular company which consolidates the loans first pays off the existing loans to their respective lenders. Then all those loans are merged into one, taking the average of their rates of interest as the applicable rate of interest on the consolidated loan. Thus the borrower finds a reduction in the interest rate. It is then this company alone to which the borrower must repay the loan.

The consolidation process is a fairly easy process. There are several companies (mostly online) who are only too willing to examine the existing loans of the student and consolidate the loan with them. Students can approach these companies via the internet. An ordinary consolidation procedure takes about 30-45 days. There are no prepayment penalties on consolidated loans.

The rates of interest on educational loans increase on the 1st of July each year. But when a loan is consolidated, then the rate of interest in the year of consolidation becomes constant for the remaining period of the loan. This is called as locking the rate of interest of the loan. Locking a loan by consolidating it is a suitable option if the borrower wishes to be precluded from the rising rates of interest each year. Certain finance lenders online provide locking of consolidated loans for as low rates as 3.5%.

Consolidation of loans is a prudent option as the borrower has to think about repayment of a single loan instead of several. When several loans are consolidated into one, the interest payable also reduces drastically. By consolidation, the borrower can save hundreds of dollars per annum in the amount that would have been paid as interest. Another advantage is that in the situation of deferment in repayment the borrower has to negotiate with only one lender.

Student Loan Debt provides detailed information about student loan debt, student loan debt consolidation and more. Student Loan Debt is affiliated with Debt Consolidation Loan Online.

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So, you’ve been to collage, got your degree and thousands of dollars of student debt. You’ve heard about student loan debt consolidation, but is it worth the bother?

In a word, yes. Consolidating your student debt is one of the best things that you can do, provided your bear certain points in mind.

The first major benefit is the opportunity to save money on your loan. If you have several federal student loans, it’s possible to save more than 50% through consolidation. Your student consolidation loan will have a fixed interest rate similar or even lower than the loans that are being consolidated. So in addition to saving money, the fixed interest rate will help you to budget.

And that’s just the start of the benefits. Student consolidation loans are easy to set up, they’ll give you a single monthly loan repayment which is often lower than you were paying, and it gives you the chance to secure the lowest interest rate available at the time. Consolidation may also help you to qualify for repayment deferments.

But there are certain pitfalls that it pays to be aware of.

When you set up your consolidation loan (and therefore fix the interest rate that applies to your debts), make sure that the interest rate that you are offered is lower than the rate that you were paying. This might sound obvious but it’s not unknown for people to end up paying a higher rate of interest on their student debts. Remember, if the interest on your loans is fixed at a lower rate it will take less time and less money to repay your debts.

Student loan debt consolidation can help to reduce your monthly loan repayment in one of two ways. As we’ve already seen, it can fix the interest rate at a lower level. But you also have the option to spread the repayments over a longer period of time (up to 30 years in some cases). Please be aware that although this will reduce your repayments dramatically, it will also mean that you have to pay interest on the money you owe for a longer period. So in the long run you will pay more overall.

So before you consolidate, always compare the total cost of repaying your debts both with and without consolidation. If you need help finding out how much you owe, the interest rates and the loan companies, use the National student loan data system. They have full details on federal loans.

Another major attraction of student consolidation loans is their flexibility. Many different loans, including Federal direct loans and federal stafford loans can be consolidated. They can be taken out before you graduate or during your years of repayment. You also have a choice of repayment plans.

You can pay a level amount each month. When you consolidate, the total debt (money borrowed plus interest at the fixed rate) and the repayment period are used to calculate your monthly payment. So if you pay that amount every month for the length of the loan, your debt will be repaid in full. This flat payment option is the cheapest way to repay your debts.

Alternatively, you can opt for a graduated repayment plan. You start by making small payments which cover just the interest, and the payments slowly increase until you eat into the original debt.

Finally, before you sign on the dotted line, make sure you ask three questions;

1) Is this the best interest rate that’s available?

2) Is there a reduction available for making payments on time or online?

3) Does this loan meet your needs?

by Stuart Laing

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