Student loan consolidation is one kind of a process where-in several student loans are combined together into a single consolidation loan. This is being done in order to assist students to manage their financial debts or to overcome their educational expenses. When a student consolidates his or her student loans then they have to just pay one monthly payment instead of making several monthly payments. This also lowers the rate of interest since all the loans are combined into one making it easy for the students to repay their loans every month. Many students usually consider going for lower payments as it is a great benefit for them.
However consolidating loans can even cause them to pay more interest rates and for a longer period of time if in case they fail to repay their monthly payment in time. Interest rates on consolidated student loans are normally lower compared to unconsolidated student loans and mostly students go for fixed rate student loan consolidation. When it comes to unconsolidated student loans, the rate of interest is always variable this means the rate changes frequently without any warning. However, with fixed rate consolidation loans the monthly interest rate remains the same all through the period of the student loan.
What if a student defaults on the payment of Student Loan?
If a student defaults on the payment of his or her student loans then he or she may still qualify for the student loan consolidation. However, it is necessary for a student to check with the loan lender in order to make sure that their defaulted loans are not subject to income garnishment. By the way, if the student’s defaulted loan is the subject to income garnishment then they may not be liable to consolidate their loans.
How Does a Student Loan Consolidation Work?
In order to pay for their collage expenses which include obtaining admission, accommodation, books tuition fees, collage fees etc, many students use thousands of dollars through their student loans. So, to lower the burden of higher monthly payments few students choose to consolidate their student loans which help them to make just one monthly payment. A student loan consolidation combines all the loans into one single loan making it easy for the students to make their payments every month. This combination of loans also lowers the interest rate which has to be paid by the students every month and even the duration of payment is longer.
Example of Student Loan Consolidation
If a student has several outstanding loans which sums to 5,000 dollars with one company, around 6,000 dollars with a second company and up to 9,000 dollars with the third, then the student loan consolidation usually allows the student to owe 20,000 dollars just to one loan company instead of owing with all the three. This in fact saves lost of money for the student in the longer run since these companies may even offer several competitive rate of interest. This means a student has to pay less on his or her student loans within a short period of time and just to one Loan Company.
Problems Associated with Impending Student Loan Consolidation
Problems associated with impending student loan consolidation can occur in case a student catches a deal with usually does not work to his or her situation. For example, if a student selects no-cost student loan consolidation which does not provide low rate of interest, then they can end-up paying extra compared to the original student loan which they had. This is why, it is necessary to choose a company which helps students to consolidate their student loans but with lower rate of interest.
Benefits of Student Loan Consolidation
One of the main objectives of choosing student loan consolidation is for improving your overall financial status. There are lots of benefits of consolidating your student loans and some of them include improving credit score, getting cheap debt earnings ratio and to lower down monthly payment. The package of student loan consolidation normally offers several money accumulating incentives. The know-how of various incentives will definitely assist students to make a perfect choice. One of the best sources for understanding about consolidating student loans is through the net.
Tips on Finding the Best Student Loan Consolidation
Finding a best package that offers low rates on your student loan consolidation is very much important however there are certain things that affect your student loan this includes:
- Reduction of Interest Rate – Most of the companies that deal in providing student loans usually offer many money accumulating incentives such as reduction in interest rates when consolidating student loans. If you do some research you are sure to find a find reduction on interest rate up to 1.75 percent.
- On Time Reduction of Interest Rate - Some of the companies which deal in student loans normally reward student with one percent reduction on interest rates if students do make payments in time.
- Auto Pay Reduction of Interest Rate – Your mode of repayment usually fetches 5 percent of reduction on interest rates in case you allow self deduction in order to pay for your student loans. Auto pay provides a complete freedom from late payments and paperwork. Certainly, you can easily save considerable amount of money through this process in your long run.