When you first step onto campus it’s easy to sign every piece of paper that ever crosses your person. In many cases, these pieces of paper are your class schedule, followed secondly with the bill to pay for your class schedule. Unfortunately, most college graduates are far different at 23 years old than they were when they were 18, and many now realize the dangers of debt. Luckily, some student loan consolidation programs may offer an excellent opportunity to get out of the debt load you incurred as a college student.
The most common type of student loan debt is public student loan debt. Offered and serviced by the Direct Loans division of the US Department of Education, public loans can be more of a burden than other student loan debt. At 6.5% annual interest or higher, your debt loads from Direct Loans may grow faster than loans given to you by private institutions.
Consolidating a public student loan is as easy as asking Direct Loans for a consolidation. Each loan you take out from the Direct Loans Program is an individual debt. Therefore, you may be able to consolidate four different loans—from each year of your college education—into only one loan with lower monthly payments. Additionally, for those who were in school before 2006, it may be possible to turn an adjustable-rate loan into a fixed-rate loan.
Do note that public consolidation programs cannot be used to consolidate private student loan debt. Instead, you can only consolidate public debts equal only to the current amount that you have outstanding. This is to say that if you have $25,000 in public debt, and $20,000 in private loans, you’ll only be able to consolidate the $25,000 in public debt from Direct Loans.
Private Student Loan Consolidation Programs
Private student loans can be consolidated with more flexibility than other loans. Private lenders are willing to consolidate multiple debts from various sources, allowing you to match private and public debts into one private student loan consolidation debt.
Private lenders are also less costly than public lenders. Whereas a public loan accrues interest at a 6.2% rate annually, a private loan may be 2-3 percentage points lower than a public loan. Rates vary by borrower, cosigner (or no cosigner), and the credit history and income of any party who puts their name on a loan.
There are two reasons to consolidate debts:
Simplification – Simplifying your student loan debt with a consolidation program allows you to put individual debts together to make one monthly payment. This is a great way to reassess your goals in paying off your debt, and simplify your finances. It’s a lot easier to take care of a single monthly payment than it is to take care of four or five of them.
Lowering Payments – Many people seek out a student loan debt consolidation program to lower their monthly payments. You can lower your monthly payments by finding a lower rate of interest, or by increasing the amount of time you take to pay off the loan. Finding lower rates of interest on public debts with private loans is a great way to reduce your total monthly payments by 25% or more. On the other hand, you might find that you need to delay the time in which you plan to pay off a loan. Delaying the payoff date, however, will not reduce a total amount of money you pay back to the lender. Instead, you’ll pay more in the long haul, but less each month.
Whether you’re looking to make simpler your personal finances or just looking to lower your monthly payments, student loan consolidations can make a lot of sense. Always be sure to compare finance terms, especially the annual rate of interest, payoff dates, and the other options available to you for managing your account. Some companies also offer promotional rates, or credits for an interest rate deduction if you agree to pay monthly through an automatic deduction from your checking account.