Student consolidation loans come with their fair share of merits and faults. If you have already heard this term you may also know that consolidation implies the grouping together of several loans viz the private student debts, federal student loans etc. The rate applicable on the new single loan is lesser than what the borrower paid (in total) for several debts. Most of the borrowers saddled with the rising number of debts resort to consolidation. If you’re considering it as a means of dealing with your expenses as well, then you should educate yourself duly about its nuances as well.
Eligibility
In order to qualify for consolidation you have to fulfill the following criteria:
- You should have a decent repayment history
- You should not be registered in any less than part-time status
- You should be within the grace period of the debt.
Debt Consolidation: Its Merits
Student loans account for one of the most significant financial hassles dealt with by the Americans today. Consolidation assumes a viable form of respite in these cases owing to the revised rate of interest and longer repayment term. Here is how student loan consolidation services help borrowers:
As consolidation entails the clubbing together of several loans together for one single debt, it becomes easier for you to keep track of your monthly repayment. With a plethora of debts, credit card bills and other varied expenses to meet, it often becomes difficult for you to calculate your total monthly expenditures. Organizing several small loans in to an umbrella loan turns out to be immensely helpful in these cases. With just one single debt instead of several ones, you just need to remember one due date.
Consolidation helps you to switch from variable to fixed rates. In case, you have several private student debts at variable rates then you can switch to fixed rate. As a result there is no danger of paying up higher rates of interest in case the rates go up. However, in that case you won’t be able to cash in on the reduced rates if they ever go down—either.
Consolidation provides you the opportunity to secure an alternative repayment plan. Your financial circumstances might have changed from the time you first took the loan (perhaps about 10 years) ago. Today it might not be possible for you to adhere to the same repayment scheme that was determined so many years ago. Consolidation provides you a host of repayment plans so that you can choose one in accordance with your financial status:
- Graduated payment allows you to make lower monthly payments first and then graduate to higher repayment after a certain point of time
- Extended repayment entails stretching of the repayment period in accordance with the balance that you owe
- Income sensitive repayment scheme is based on your earning and total outstanding debt. The repayment plan changes with changes in earning
Demerits
One of the major demerits of student debt consolidation is often eclipsed by the affordability it offers. It entails the stretching of the repayment tenure so that borrowers can repay the loan in smaller amounts than before. It actually means that in order to avoid short term expenses, the borrowers actually end up paying more in the long run.
Make sure you are considering both the advantages and disadvantages before opting for consolidation.
