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Should I Consolidate Student Loans

Article on Should I Consolidate Student Loans

Many ask “Should I consolidate student loans?” The answer to that depends on the individual circumstances of each student or parent. Below is a step by step guide of how to answer this question.

Step 1: Determine When Payments are Due for Each Loan

When asking should I consolidate student loans, you first need to know when payments are due as well as how much is due. Although students should have received complete information about the total amount due, minimum payment amount, and when each payment is due when they received the loan, most lenders send out a reminder before the payments are to be started. If the student believes they’ve not received all the information they need for each individual loan, they should contact the U.S. Department of Education’s National Student Loan Data System (NSLDS) for all the details at www.nslds.ed.gov.

Step 2: Determine the Total Amount of Debt Owed

Once the student or parent has received all the information on when and how much is due, they should calculate the total amount due (don’t forget to add any servicing fees that may be charged), along with the APR (Annual Percentage Rate) for each loan. The student should check to see if their federal student loans, like the Stafford Loans, can be consolidated through the Federal Direct Consolidation Loan program. This program offers various repayment schedules that have been created to help students and parents take control of debt. When adding up the total amount due, don’t forget any private or personal loans that were given.

Step 3: What Type of Loans are Available?

Those who have a solid job and a good credit score should inquire about a personal loan at a bank or credit union for a fixed-rate loan, although many times students are unable to obtain a loan for the full amount they need. These fixed-rate loans will provide payments that do not change over the course of the loan, making it easier to budget. Those with high amounts of educational debt may need to obtain several loans instead of just one. With private loan consolidation, the FICO credit score determines if you get the loan and what the interest rate will be. There are no fixed rates on consolidated private loans and the interest rate will normally be tied to prime rate.

Step 4: Determining What Type of Consolidation Loan is For You

When asking should I consolidate student loans, you have to determine what type of consolidation loan the student is eligible for and what works best for their life, financial burden, and income. Federal consolidation loans do not vary by lender and there are no application or origination fees, as well as no pre-payment penalties. Private consolidation loans are not subject to these federal regulations. For those that cannot consolidate their educational debt under the federal loans may need to obtain the private financing for all or part of their loans. If students can make all their regular payments without difficulty, consolidating may not be right for them.

Looking into all of the options before deciding whether you should consolidate your student loan is best. Figure out what works best with your current budget and income and try to plan ahead for the future. When it comes to consolidating loans, it is very easy to consider the present but it is the future that really needs to be considered.