Lower Monthly Payments

Students are often shocked when they have to make their first student loan payment. They often forget that they are not only paying the amount of the original loan, but also the interest the loans have accrued over time. Plus, most students take out a few different student loans to cover their educational expenses. They think that one bill a month for $150 is bad enough, but the student loan bills just keep coming. After all, they took out eight different loans to pay for their education. Each loan company is sending them a bill. It is not uncommon for student loan payments to exceed hundreds of dollars each month

When you are just starting out in your career, this can be incredibly difficult. You don’t just have student loan payments to worry about. There are housing expenses, insurance, car payments, and monthly living expenses, too. You may begin to feel like you are sinking further and further into debt. However, it does not have to be this way. People who decide to take advantage of student loan consolidation will be able to lower their monthly student loan payments.

How it Works

Lowering your monthly payments does not mean that you will lower the amount of money you pay back in the long run. You just have more time to pay it off. Let’s assume that you have $50,000 in student loans that needs to be paid back in 10 years. You are looking at a base payment of $416 a month, plus interest. When you consolidate your loans, you agree to extend your payments out to 20 years. You basically cut your monthly payments in half. Now, you will have a base payment of $208 a month, plus interest.

Remember that federal student loans and private student loans have to be consolidated separately. Because they have different interest rates and different terms, they must be managed separately. The majority of standard federal student loans must be paid back within 10 years of graduating. Consolidating your federal loans may give you up to 30 years to repay the money. Private loans vary dramatically with their terms. Consolidating these loans often gives the borrower between 25 and 30 years to pay them back. Graduate students will often be given longer repayment terms due to the cost of their education.

Things to Consider

It may sound great to have the opportunity to have more time to pay back your loans, but be careful. Although your monthly payments will be lower in the long run, you may end up paying more in interest charges. In some cases, this can add thousands of more dollars to your overall loan total. Think about your house payment or car payment. When you pick a longer term, you end up paying more interest because you have more payments. The same is true for student loans.

Honestly assess your financial situation, and determine how soon you can repay the money. Often, you have just one opportunity to consolidate your student loans. You want to pick monthly payment terms that you can realistically meet. Otherwise, you will end up paying penalties and fees that end up costing you even more money. However, you don’t want to pick the furthest date on the calendar. The sooner you can pay off your debt, the sooner you can start saving more money.

You may win the lottery, inherit some money, come up with an idea that makes you millions, or be financially successful in your career. If this happens, you may decide to pay off your student loans early. Make sure there isn’t a prepayment penalty if you pay your consolidated loans too early. Companies issuing student loans make their money from the interest they charge. If you pay your loan too early, they will miss out on all that interest, so they might charge a prepayment penalty to recoup their losses. As your loan continues to mature, the penalty should decrease substantially.