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Drowning in Educational Loan Debt: Will Loan Consolidation Save You?You've heard about loan consolidation and the idea of making a smaller payment to one lender sounds like a dream compared to your current nightmare of feeding a seemingly endless stream of money to a number of different lenders. No contest--where do you sign up? Rein yourself in for a moment. Consolidation may be the perfect solution to your financial woes and then again it may not be. So before you jump on the consolidation bandwagon, here are a few things you might want to consider. Are Lenders Axing Consolidation Loans? Higher education leaders anticipate that lenders may cut back on the Stafford and PLUS loan incentives and discounts previously offered to attract borrowers--and eliminate them altogether for consolidation loans. Consolidation loans, with the tightest profit margin of all education loans, may even be on the chopping block for some lenders while others may increase the minimum balance that qualifies a borrower for a consolidation loan. Even if lenders back out of the consolidation loan business, consolidation is still available through the federal Direct Consolidation Loan program, but the government doesn't offer the incentives and discounts that lenders have long been using to attract borrowers. Are Interest Rates Coming Down? Consolidation: Thumbs Up or Down? Consolidation may be a good idea if: • You have a variable interest rate and would rather have a fixed rate. This may be a good idea but you might want to wait and consider it only if interest rates start going back up. And, what happens if variable interest rates stay down or drop below your fixed rate? • You have a variety of loans and lenders and would like to have only one lender. One problem--you may have to 'pay' for the convenience by accepting a higher interest rate on some of your loans. • You need more flexible repayment options. Repayment options available through consolidation are: Although the Stafford Loan programs offer flexible repayment options, the Perkins Loan program currently does not. Note: An income-based repayment option will become available for FFEL and Direct Stafford, Perkins, Grad PLUS, and Federal Consolidation (less undergrad PLUS) loan borrowers on July 1, 2009. • You absolutely need to ease up on your monthly payments. Beware of this option. A lower payment generally means a longer repayment period and paying more interest over time. Consolidation may not be a good idea if: • Any of the loans you plan to include have cancellation or forgiveness options that may be lost if you consolidate. • Your current lender offers rebates (such as an annual reduction in your interest rate) for successive on-time payments. You would lose this option if you consolidate and, as previously mentioned, lenders may be phasing out incentives for consolidation loans. • You consolidate during your grace period(s). The remainder of your grace period is lost. • You've already substantially reduced the amount you owe. Because consolidation generally extends your repayment period, often with an increased interest rate, you may ultimately end up paying more. Research and Conquer Then ask yourself the following questions: You can see that the decision whether or not to consolidate is not black and white. It is an individual decision--it may work for some and not for others. Because there are long term implications to consolidation, do your research and weigh the pros and cons carefully. When all of the evidence is in, you should be able to decide whether or not a consolidation loan is the answer for you.
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Article Tags: Financial Aid, Loan Consolidation, Student Loan Debt Article Source: http://www.articlesbase.com/debt-consolidation-articles/drowning-in-educational-loan-debt-will-loan-consolidation-save-you-463241.html About the Author:
Kelli Smith is the senior editor for www.Edu411.org. Edu411.org is a career education directory for finding colleges and universities, training schools, and technical institutes.
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