Student Debt Consolidation Loans Simplified

Student debt consolidation loans are offered to students to make their debt payments easier and convenient. Student loans allow students to take care of all their education expenses-tuition, accommodation, books, fees etc. The terms for these loans are generally more relaxed than usual loans with a lower rate of interest and repayment period that extends to a time when the student has completed his or her education.

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However, sometimes with too many payments coming your way every month, things may get a little out of hand. It is possible that multiple loans with different rates of interest may throw you off track, and you may have trouble keeping with all your loan payments every month.

A student debt consolidation loan may be the best way to bail you out if you are having trouble with the monthly payments. A federal student loan and a private loan are the two most basic alternatives that you can look into.

Federal student debt consolidation loans

These are offered on federal loans and are financed by the Department of Education. All your existing federal student loans and their interest payments are converted into one lump federal student debt consolidation loan. You have various options like Plus Loan Consolidation, Stafford Loan Consolidation, and Perkins Loans etc. Your new rate of interest on the consolidated loan is based on you current rate of interest for that year. Depending on the kind of consolidation loan, it may quite a bit.

Private student debt consolidation loans

These are offered to students by private lending institutions like banks, or other lenders, to consolidate your loan payments into one big consolidated loan. These student debt consolidation loans are available to students with private loans only, and you cannot avail the terms and benefits of a federal students’ loan once you go for a private debt consolidation loan. If you have a good credit score, you can consider this option, as you may have a chance of getting a lower rate of interest on the consolidated loan. Otherwise, generally students are better off with a federal consolidation loan.

Why should you go for a student debt consolidation loan?

1. Managing one loan is easier: Often students go for more than one student loan to take care of all their expenses. While this may help those who have no savings or backup to get quality education, the multiple payments may prove to be too much. You may not be able to keep track of all of them in time. Hence, the need to consolidate.

2. Protect your credit score: Missing payments may wreck your credit score, and a bad score to begin with, will reflect poorly on your future financial needs (and even employment possibilities).

3. Buy more time for repayment: As a fresh graduate, your income may not be enough to comfortably sustain yourself and your student loan payments. A student debt consolidation loan will buy you more time so that with an increase in income in the future years, the monthly interest payment will not be a huge burden. However, you should keep in mind that while your repayment term may be longer, the total cumulative account paid at the end of the term might be more than before.

4. Lower interest: The student debt consolidation loans typically offer you a rate of interest lower than the current rate on your loans. This makes your monthly obligation easier to handle.

5. Making things easier: A student debt consolidation loan will simplify your payments so that when you begin life after college, you are not weighed down constantly with interest payments, but an easier consolidated payment every month.

How to go about a student debt consolidation loan

Federal student debt consolidation loans

The US Department of Education lets you directly apply for a consolidation loan by filling in an online application form and signing a promissory note. You can also view updates about your application status and the new rate of interest online.

Private student debt consolidation loans

These require you to lock-in on a private lending institution that offers you the lowest rate of interest and the best terms. You may get a lower rate of interest than the federal consolidation loan depending on your credit score. The process is simple and requires you to fill in an application form, and give details of your current student loans, before the terms of the consolidated loans are decided.