What To Consider When Consolidating Student Loans

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It is always a great feeling to finally complete your course of student and graduate. This is a time full of promise, hope and excitement about a new career, financial stability and new options, however it is also a time of having to start paying your student loans. Typically most students will owe a significant amount of money, for some graduate students their student loan debt may be over $150,000, however for undergraduates the debt is more typically closer to $20,000. In most cases this debt is spread out over several different lenders, with payments, interest rates and monthly payments all at various times of the month.

Consolidating student loans has been an option that has been available to students for many years. When consolidating student loans individuals are borrowing one larger sum of money that is then used to pay off all the smaller loans, resulting in one monthly payment that is stretched out over a longer time period. This is the biggest benefit to consolidating student loans for most individuals, a single, lower monthly payment that is easier to manage. However, it is also important to keep in mind that this stretches your payments from ten years with standard student loans to up to thirty years on a consolidated loan. Over those years the individual will continue to pay interest payments, which will add up to a considerable sum of money over the total life of the loan.

It is also essential for individuals and students to understand that consolidating student loans may not result in an overall lower interest rate. While most student loans will be variable, some will be fixed, and a consolidation loan rate may be higher than the fixed but lower than some of the variable rates. If consolidating student loans will actually increase your interest rate because of the amount of money in the various variable or fixed rate loans this may not be the best option for you.

It used to required that students considering consolidating student loans were restricted to doing business with a company or agency that they had the original loan with, this was known as the "single-holder" rule. New regulations now eliminated this rule, meaning that students are free to shop around with any company offering services of consolidating student loans to get the best interest rates, flexible options and deferments if possible. Since this policy has been in place more consolidating information is routinely provided to students through mail outs and other sources of advertising. Keep in mind that sticking with the same loan company for the consolidation may be a good idea, if you are getting a good interest rate and are able to make all the payments.