At this point, the amount of money that the college student has spent on an education is likely the greatest amount of money that he/she has ever spent on anything and seems astronomical. But several years of education during the 21st century is simply an expensive prospect. To begin a career after graduation without untenable debt, begin repaying student loans while they’re manageable.
What is College Loan Consolidation?
According the online Financial Dictionary a consolidated loan is “A loan that pays off two or more loans. A consolidation loan often comes with a lower monthly payment and/or interest rate than the previous loans, as well as a longer repayment period. The process is usually called debt consolidation, and is often used for student loans.”
Consolidation of a college loan simply means that instead of paying several loans the borrower will pay only one. The amount of money that is owed will not decrease and may even increase if the length of the repayment period is extended and additional interest is accrued. Individuals who are considering consolidating their student loans should carefully evaluate their options and determine if college loan consolidation is the best option.
Benefits of Student Loan Consolidation
Consolidation of college loans can aid a new graduate in repaying student loans by simplifying the repayment process. Most loans have a six-month grace period that commences following graduation from college; after six months the borrower must begin making loan payments. One consequences of non-payment or late payment is a bad credit history, and this can affect one's ability to gain employment in some fields.
Of course, employment is required to earn money to repay loans, but many employers (federal employment is one) will run a credit check or background check of prospective employees. A bad credit report can adversely affect one's ability to repay a loan by limiting employment options. Consolidation of loans can help some borrowers to avoid the bad credit consequence of late or missed payments.
Although college loan consolidation won’t reduce the amount of money owed to the creditor, consolidation will make it easier for the borrower to understand exactly how much he/she owes and adjust his/her budget accordingly. The process is simplified as the borrower only has one payment due to one creditor with consolidation of student loans.
David Randall of Forbes magazine counsels that in consolidating loans “The theory is that, either by stretching out repayment of the loans or refinancing them at lower interest rates, the borrower can reduce monthly payments. Unfortunately, it's not a strategy that works for everyone” (2009). To determine the best personal financial arrangement, review contracts and written agreements – review all of the paperwork.
Arrange the Paperwork
To repay several loans without consolidation, one must locate the paperwork for each loan, make contact with each creditor and arrange for each creditor to receive each separate payment. Is there a possibility for confusion? The possibility of confusion is reason that one begins by procuring all of student loan paperwork and determining deadlines, grace periods, payment due dates, and required payment amounts.
After arranging the paperwork, ask these basic questions:
- Is the number of loans overwhelming?
- Is a one -payment option preferable?
Is College Loan Consolidation the Best Option?
If the requisite payments are too large, contact the loan agency and determine the process for modifying the payment or contact a consolidation agency to learn loan options. Negotiate for terms that are amenable to personal budget and employment situation. Also if unemployed, consider applying for a deferment of student loan payments. Finally, consider that “private loans cannot be consolidated with federal loans” (Randall, 2009).
Consider any Disadvantages to College Loan Consolidation
If loans are consolidated during the grace period – the grace period ends. For individuals who need the additional six months to seek employment or make other arrangements, consolidation of loans may not be the best option. Also be wary when engaging in any financial matters and ensure contact with reputable agencies.
Make A Decision
If paying the loans separately is too complicated or if loan payments to a single creditor is a more appealing option, consider a consolidated loan. Whatever the final decision, carefully evaluate all options. Become familiar with the requirements of each creditor that is owed, and develop an effective repayment plan. Borrowed money spent on a college education must be repaid.
Additional Reading
Randall, D. (2009). Tips on consolidating student loans. Forbes.com
Federal Direct Consolidation Loans. Frequently Asked Questions. Loan Consolidation
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