Student Loan Consolidation: A Brief Insight

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For a person, his life as a student for certain period plays an important role in shaping his career in future. Several factors affect his student life and student loan is one of them. As everyone knows, the repayment of sufficient amount of loan can be a burden for both students and their parents. In US, an undergraduate student owes more than $10,000 after his graduation. So, the students who study medical or law owe more than the undergraduate ones. However, the worst thing is, paying off these debts have become more difficult for them in the midst of uncertain jobs and the recession.

Still a student can go for a student consolidation loan since the interest rates are at record lows now. Students can save lots of money in interest charges with student loan consolidation. Anyway, to achieve this, one has to be well aware of the facts related to student loan consolidation.

Student Loan Consolidation: A Definition

Student loan consolidation is typically defined as the process or the act of combining multiple loans into a single loan in order to decrease the monthly payment amount or elevate the repayment period. There are a lot of reasons behind it, and among those is money saving payment incentives, decreased monthly payments, fixed interest rates, and new or renewed deferments.

The fruitful offerings of student loan consolidation

Many experts agree that student loan consolidation helps students in many ways. They are:

1. Huge amount of interest savings

Usually the student loans that a person has borrowed are consigned with different variable interest rates. That means, a loan that a person received offers, lets say, 3.5 percent at first, but then the rate may go up as the interest rates go up. Thus, if that person has two or more of these loans, he may have owed amounts at different rates. These rates may fall or rise yearly. So, if the interest rates go up, the amount of debt will mount faster than it would if you consider a student loan consolidation.

However if a person goes for student loan consolidation and stays on 10 years payment plan, he can lock his interest at today’s current loan rates and save lots of money. Also, all those loans got from different lending companies or banks can be managed. It is because, when that person consolidates, all those loans form into a single loan. Thus, that person will have to deal with one single company and make one single payment. Along with this, that person will get reduction in his loan payment and interest rates when he pays his debt on time.

2. Improved Credit Score

The other benefit that a person gets from student loan consolidation is his improved credit score. Improved credit score will come into consideration when a person wants a new car, home or charge card. These tips will be very helpful as a person begins his job hunt.

* Do not have more accounts than one: If you have opened more accounts, then your overall credit score will be low. So you have to combine those opened accounts into one. You can do it only through a student loan consolidation.

* Do the lower payments: The amount of the borrower’s monthly minimum payments will be taken into account when the credit report evaluation begins. If you have number of loans, each and every payment is considered part of the borrower’s monthly payment obligation. So, having student loan consolidation will cut down your monthly payment at low. Thus your credit score will be improved.

* Keep an eye on your debt to credit ratio: When a person has many loans with a maximum used, it will have negative effect on his credit score. So, if you consolidate the opened accounts, the number of being used accounts will become less.

When to Do Consolidation

An interesting fact in the government consolidation loan program is that there are no deadlines. That is, a student can apply for the student loan anytime during grace period or even on the repayment period.

The consolidation of student loans usually takes place during the grace period. At this time, to estimate the weighted average fixed rate in order to consolidate student loans, the lower in-school interest rate will be applied. The higher in-repayment interest rate will be applied to estimate the weighted average fixed rate when the grace period ends. A student can consolidate his loans even if his student loans are already in repayment and it is beneficial. The benefit is that the student already fixes the interest rate on his government student loans while the rates are still originally low.

The Conclusion

Student loan consolidation program definitely helps the students in many ways. However, you must note that the interest rates are always not to stay low in the end. If you want to finish your college education with flying colors and make it your solid platform for the job hunt, then consolidate your college loans.


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