Are you fed up with managing multiple federal or private student loans? Are you tired of paying multiple interest rates which are draining you financially? What about the multiple servicers of your loans, aren’t they just too demanding? Now you know why consolidating student loans are the best thing to ever occur to students the world over and here’s why.
Single loans instead of multiple
The moment multiple becomes single, it is akin to putting your entire burden in one pool and letting someone else manage it for you. Of course we all know that multiple loans do not come with uniform interest rate. The lenders are all different, implying that you will be having varying rates of interests. In the long runway you are left with are unimaginably high interests monthly which could knock you down financially.
Play it safe by consolidating them into single loans since this will make it easier to pay the new, low monthly rates that you will be given by the new lender. Technically speaking, your new interest rate for the single loan will be quite affordable.
How does this work?
If you had 4 loans under your multiple private loans program and then you switch to consolidating student loans program, what will happen is that the weighted average of the loans will be taken to make up the new interest rate. As expected with weighted averages, this will be lower than the respective interest rates paid for each of the 4 loans.
Pray though that your monthly payments do not reduce as this could mean that you end up paying more even if you have an extended period for repayments.
One thing that you will note about consolidating students loans has the benefit of making the loans affordable and easy to pay for without the risk of defaulting. The rate of interest goes down, the monthly payments goes downs and of course you get the discount on the interest paid.
Is consolidation cure-it-all?
Many people view consolidating student loans as cure it-all: the panacea for the student loans that they have been struggling to pay for a long time and so on.Howeever, as we have pointed out, this is not always the case. The benefits outweigh the disadvantages but one should be wary of the fact that making low monthly payments could mean that you have longer periods of payment but in this could potentially mean that you pay much more.
The other thing is that private student loans and the federal student loans cannot be combined unless under refinancing. This basically means that in order to optimize the consolidation, one should consider the refinancing option that is availed to students as an alternative.
All in all, the idea of consolidating student loans is a noble one and should thus be embraced by all. One should be conscious of the few limiting factors as identified above as this means that you could end up carrying a big burden despite the advantages outlined.