When Should You Consolidate College Loans?: Federal Vs Private Student Loan Consolidation

When Should You Consolidate College Loans?: Federal Vs Private Student Loan Consolidation

The large sums of money involved mean that few college graduates can afford to fully settle the balance so they consolidate college loans instead. A 2007-2008 National Post-secondary Student Aid Study (NPSAS) revealed that the median level of student loan debt amongst graduating seniors was $23,186. However, given that only 65.6% of graduates had any debt at all, the real figure for those who borrowed money is clearly a lot higher.

Why Consolidate College Loans?

The objective of private student loan consolidation is to simplify personal finances and reduce monthly student loan debt repayments. Loans are normally re-scheduled in order to increase the rate that debt is cleared or to extend the term in order to improve affordability. Neither is the wrong option as having sufficient disposable income to pay other bills is important. However, extending the borrowing term will increase the amount of cumulative interest that is paid.

Private Student Loan Consolidation

Those who have borrowed money from a financial institution, rather than the federal government, should consolidate their college loans in order to reduce debt and/or increase affordability. Interest rates have fallen considerably over the last few years so refinancing could make a considerable difference to student loan debt repayments. However, it is important to assess the amount of federal borrowing prior to consolidating. Federal student loans normally have considerably better terms.

Federal Student Loan Consolidation

Whilst a loan from the government does involve more paperwork and separate payments (each years loan creates a new account), the rate of interest is normally a lot lower than it is on a bank loan. The interest rate on a Perkins loans is just 5%. In the event of financial difficulties or problems finding employment, it is possible to defer the loan without interest accruing. Check the interest rate and terms of borrowing, not just the monthly repayment before performing private student loan consolidation.

Reduce Student Loan Debt Repayments or Student Loan Debt?

Federal or private student loan consolidation can be used to structure repayments in such a way that they fit in with the current lifestyle of the individual. When choosing to consolidate college loans, don’t reduce the term to such an extent that it leaves little room for manoeuvre in the event of a financial emergency. Think carefully before turning federal debt into a private bank loan as the terms and rate of interest are normally a considerably more favorable. Never default on student loan debt as it removes many of the options available to the struggling borrower.


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