Student Loans Defeating Your Finances? Fight Back With Consolidation!
If you are one of the millions of people in America that choose to pursue higher education, then you are probably intimately familiar with the woes of student loans. While you were borrowing thousands upon thousands of dollars, otherwise known as student loans, you might have put off thinking about repayment, choosing to concentrate on your studies rather than debt and interest rates.
However, after the diplomas are bestowed and graduations are celebrated, student loan bills magically appear like unwanted guests at a private party. What’s even more surprising is the amount that lenders want you to pay back monthly—a figure higher than any car note you’ve ever had! Rather than wallowing in self-pity, begging on bended knee to parents, or picking up the night-shift at the local diner, consider your options.
Deferring your loans and forbearance, temporarily suspending payments due to financial hardship, are temporary fixes. After these options are exploited, consolidating your student loans is your best bet. What is consolidation exactly? You probably obtained several loans over the course of your college education. Each loan has its own terms and its own lender. Consolidating your student loans means sending a payment to only one lender, rather than to a multitude. The new lender that consolidates your loans will pay off your debt and you will have a new loan with a new interest rate and new repayment terms. What are the benefits of consolidating your student loans?
Only one lender and one monthly payment—Rather than keeping up with several loans, consolidating allows you to lump them all into one loan, therefore you only have one monthly payment to one lender.
Flexible repayment options—Consolidating your loans gives you the option to choose a repayment plan that works for you so that you can adjust your payment to your finances instead of the other way around.
Additional deferment options—Though you may have exhausted your deferment options with your previous student loans, deferment may be available under the terms of your new loan, giving you extra time to make adjustments in your budget.
Reduced monthly payments—Stretching the loan term means that your monthly payments will be almost cut in half, making them easier to manage.
Retention of subsidy benefits—Subsidized loans means that the government pays the interest on your federal loans for you. You still keep this benefit even if you consolidate.
Fixed interest rate—Some of your student loans may have variable interest rates which can destroy your budget down the road. By consolidating, you can lock in a fixed interest rate on all your loans and save yourself a headache in the future.
Good news! You don’t need more than one loan to consolidate. Consolidation is a debt management tool that allows you to extend loan terms and minimize monthly payments. Think of it as refinancing, such as with an auto loan or a mortgage. So even if you only have one loan that seems too hard to manage, consolidation is still an option.
Now that you’re convinced that consolidating your student loans is a good way to make your life easier, it’s time to ask How do I apply? Applying for a consolidation loan is similar to applying for financial aid loans. You will be required to fill out an application along with a promissory note, the document that outlines the terms of the loan such as interest rate. You also will choose the length of the loan term. Remember, the longer the loan term, the lower your monthly payment will be.
Other payment options include graduated repayment and income-sensitive repayment. The graduated repayment option allows you to make lower monthly payments at the beginning of the loan term and larger payments later. Some lenders even allow payments as low as interest only for up to four years. The income-sensitive repayment option allows the borrower to adjust their monthly payment based on a percentage of their income, ranging from 4% to 25% of income, as long as interest is paid.
Many financial institutions specialize in student loan consolidation. If you have federal loans, a good place to begin your search is the U.S. Department of Education Direct Consolidation Loan Program or Sallie Mae. Of course, you should remember to compare interest rates and other loan terms. The best part, however, is that there is no fee to consolidate your federal student loans!
A word of caution: Federal student loans and private student loans are not the same. Some financial institutions only consolidate federal student loans. If you consolidate your federal loans into a private loan, you will lose your federal loan benefits, such as the subsidy benefits. Also, if you are close to paying off your student loans, it may not be worth it to consolidate. Instead, just make the payments for a few more months and be done with it forever.
Being obligated to repay student loans does not mean you are doomed to a life of debt. Consolidating your student loans is a spectacular idea if you want to reduce your monthly payment by as much as 50%, reduce the number of lenders you pay to one, and reduce your interest rate. There is no need to continue struggling with student loan payments, risking your credit rating and your sanity!
Make your life simpler and protect your financial status. Consolidate your student loans, reduce your payments, protect your credit and rest assured that pursuing higher education was the best choice you could have made.
Check out our other Student Loan articles:
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