Less Stress: Consolidate Your Student Loans

Entering the workforce after graduating from a two or four year program, most students find that it can be difficult to pay back student loans in the 10 years that you are given.

Studies have shown that many students do the following within the first 10 years after graduating:  purchase at least one vehicle, change jobs at least once, change jobs at least once and will purchase at least one vehicle and most likely a house.

All these expenses can be difficult to manage on top of various federal and private school loans that may be outstanding.

One major option is to consolidate student loans, which means borrowing to combine your student loans, pay them off, then pay off the remaining single consolidated loan over a longer repayment period. Most previous students, as well as ones still in school, have the option to consolidate their student loans as long as they have some form of income.

To consolidate student loans it is important to consider all your options and to understand how the various interest rate differences on the original and the consolidation loan will compare over the long run.

Advice can be given to help consider and understand both the advantages and disadvantages of consolidating your student loans.  This advice can be given by a variety of people including a financial planner, consultant, or ever your personal banker. Generally the biggest advantage to consolidate student loans is that it takes the multiple payments from different lenders you may have a literally pays off these loans, leaving you with one payment to make to the consolidated loan lender. In most cases, actually in virtually all cases, this one monthly payment will be less than the original multiple payments.

The logical reasoning behind this is that your “pay back” term is expanded, therefore you pay less per month over a longer period of time. The negative to working to consolidate student loans is also related to the repayment stretch. You will have to keep making payments for much longer, which may be up to 30 years, before you will be debt free with regards to the student loans. This means that over the life of the consolidated loan you will pay significantly more in interest, which may be a huge dollar amount if you actually make only the required payments.

One way to minimize this interest amount is to make more than the required monthly payment on the consolidated loan, and ensure that the extra payment is going towards the principal. This will rapidly cut payments off the duration of the loan, especially if you start right when the consolidated student loans are put into place.

Looking for Student Loans? Learn Useful Tips on Student Loans. Visit our Student Loan Guide.