Due to the rising costs of higher education, many students end up borrowing money through student loans to pay for college. As a result, some students end up with several loans by the time they are done with school. At that point, you could choose to consolidate your loans into a single package.
How it Works
If you have federal student loans from college, you do have the option of consolidating these loans once you begin to repay them after school. To consolidate these loans, you will take out a single loan and the money from this loan will be used to pay off all of your other student loans. This gives you a single monthly payment to deal with instead of paying multiple payments every month. You can also sometimes get a lower interest rate by doing this.
Extending the Term
One of the features of many student loan consolidations is the extension of your term. With this kind of loan, you can sometimes extend your repayment term to 30 years. If you only had 10 years to repay your student loans before, this gives you an extra 20 years to pay off your loans. This makes the monthly payment much more affordable. At the same time, you will end up paying much more money in interest over the life of your loans.
Drawbacks
Even though you do have the option to consolidate your loans, it is not in the best interest of every borrower to do so. By consolidating your loans, you may lose the ability to have some of your federal loans forgiven by getting involved with certain programs. Some lenders also will reduce your interest rate after you have made on-time payments for several years. If you consolidate, you can lose the ability to get this discount. You also can only consolidate one-time, so once you do, you are locked in until you pay it off.
Considerations
When you are ready to consolidate your loans, you will need to complete a consolidation application. Once the application is processed, you should not have to pay any closing costs or processing fees for this kind of loan. You can consolidate both federal and private student loans, depending on your situation. If you consolidate federal student loans, your interest rate will be based on an average of the student loans you consolidate. The loan interest rates will be rounded up to the nearest eighth of a percentage point as well.
Tags: your loans, student loans, consolidate your, consolidate your loans, interest rate