Students are often amazed at how easy it is to apply for a student loan: fill out a few forms, check off a few boxes, and wait for the money to start coming in. Many students do not think about interest rates and terms when applying for these loans. They are just eager to receive money to finance their education, but then reality hits these college graduates, and often hits quite hard. They have a mountain of debt that needs to be paid back, with interest.
If you are like most college graduates, you will not begin your career making a six-figure income. Depending on your field, you will be quite lucky if you initially earn $35,000 a year. Spending a few hundred dollars each month paying off your student loans will definitely eat into your paycheck and your ability to save for retirement, a home, or a car. You may find yourself even deeper in debt as you turn to using credit cards for everyday purchases.
Student loan consolidation allows you to restructure your student loan debt. You will still be responsible for your loans, but will be given more time to pay them back with the potential for better interest rates. Here is a quick look at a few of the benefits you can receive from consolidating your loans:
- Simplify – It is not unusual for people to have 5, 10, or 15 different student loans. Each loan will have different repayment terms, different interest rates, and be due at different times of the month. When you consolidate your loans, you will have just one bill each month and one fixed interest rate. Imagine the time you will save doing your monthly paperwork. However, you will have to consolidate your private student loans and federal student loans separately.
- Longer Terms – Many people are unable to pay back their student loans on time. They under-estimated the time it would take to earn the money, or unexpected life events intervened. Instead of paying huge penalties, they consolidate their loans. Through this process, they will have 30 years to pay back a federal loan, instead of the standard 10 years. Private loans will be extended, too. It is not uncommon for terms to be extended up to 25 years for an undergraduate loan and 30 years for a graduate loan.
- Lower Monthly Payments – Longer terms mean lower monthly payments since you are spreading the cost over many years. However, the longer you hold the loan, the more interest you will be required to pay, so, student loan consolidation companies often work with their clients to see if interest rates can be reduced, especially if the interest rate is variable. As the interest rate comes down, your overall payments will, too. However, variable interest rates only apply to private student loans. Federal student loans have a fixed interest rate.
- Remove Co-Signer – Most college students do not have the financial resources to apply for a student loan on their own, so, their parents will act as co-signers on the loan. A co-signer basically assumes liability for the loan in the event that you cannot repay it. At a certain point, your parents will probably no longer want to assume that liability. When you consolidate your loans, you will be given the option of removing co-signers. However, you must show that you have the ability to make steady payments.