The rates of student loans vary depending on the needs of the students, as well as other factors such as credit score and the lender involved. Furthermore, students who need financing to pull through college may not have the option of being choosy with regard to the student loans they get. After graduation, the loans that you took may or may not suit your financial situation.
What is Loan Consolidation?
A debt consolidation program offers an option of taking all your loans and combining them into a single debt with one interest rate. Basically, you will pay your old loans using the new one. This can lower your monthly debt repayments and your interest rates may also be lowered and you will have less paperwork to deal with.
Federal student debt consolidation
There are two programs for consolidating your federal student loans. These are Direct Consolidation Loan program for direct loans and the Federal Family Education Loan Program. Applicants of these loan programs do not need credit history checks. This is because they are under the insured loan program that is provided for students by the federal government. With federal loans, a graduate can defer payments if he/she decides to continue with their education, has financial difficulties or in the event of a disability.
Private student debt consolidation
Private loan consolidations can also provide borrowers with many ways of saving money. One can get longer repayment periods, lower interest rates and lower monthly repayments. However, due to the immense benefits of consolidating federal debt, students should avoid consolidating their private and federal loans together. This is because they may end up losing the benefits that are associated with student loan consolidation.
Application for loan consolidation
Depending on the type of loan that you want to consolidate, there are different ways of submitting your application. Private loans can be applied through private lenders such as banks while federal loans are applied through the federal loans websites. Graduates can apply for student debt consolidation through standard mail or virtual application.
Requirements for debt consolidation
There are very few requirements that determine your eligibility for student debt consolidation. Any graduate who has a federal loan qualifies for consolidation. However, you must be owing at least $20000 in federal loans. In addition, one should not have a default status or be enrolled for part-time classes in school. The eligibility criteria for private loans will vary depending on the financial institution.
Know your credit score before consolidation
You should confirm your credit score numbers before consolidating your student loans. This is an important step as it enables you to understand your current financial situation in detail. In addition, it will save you time because you will not have to go for lenders that need high credit scores. With a poor credit score, you may end up getting higher interest rates which will make your loan repayments more expensive.
Student loans can accumulate fast, especially if you have several loans. Furthermore, multiple payments can cause unimaginable stress due to all the monthly payments you will have to deal with. In addition, if your loans have different repayment dates, you may end up with late payments resulting in extra charges and penalties. In such instances, consolidation of your student debt is a worthwhile consideration.
