Should You Consolidate Your Student Loans?

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Consolidation makes student loans repayments manageable and affordable. When you consolidate your student loans, you combine your existing loans and use one loan to pay for them. You, therefore, have to make monthly payments to only one lender. 

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When borrowers take a student loan, money is disbursed every semester from the federal loan program. A considerable amount of this money is sourced from various lenders, so close to ten lenders will likely expect you to repay once you complete your studies. There could be other more lenders if the student takes another loan for graduate school. 

Every loan given to students has varying interest rates, dues date, and payment amount. We all understand that it is not easy to maintain payment schedules, which are primarily complicated and cause people to default. Thus, why consolidation is a favorable solution. 

Consolidation of student loans can be done through the Direct Consolidation Loan Program. You put together all your federal student loans to one with a fixed interest rate. Therefore, the interest rate will be arrived at by the average interest rate of the existing federal loans, rounded off to the nearest 1/8 of a percent.

Though there will be no decrease in the interest rates payable for federal loans, you will be eligible for repayment programs and forgiveness options. Some lenders can lower the interest rate when you make payments on time for a certain period or by making direct payments.

When to Consolidate Your Student Loans

Consolidating student loans may not be the best option for everyone, but there are benefits you could use to make your payments manageable. Here are the most common situations where you can consolidate a loan.

  • Trying to lower monthly payments

After graduating, you get enrolled into a ten-year repayment plan. If your payments are not affordable for you, then consider consolidation. Your repayment period can be extended up to thirty years by taking a direct consolidation loan, lowering the payment period.

Even though the more extended payment periods will have you paying more interest, you enjoy the benefits of having some money for personal and savings as you grow your career.

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