Valuing Student Debt Consolidation Loans

Student debt consolidation is a system that allows a student in debt to combine all his existing obligations into a single loan. With tuition fees, school materials, living expenses and other miscellaneous items, how important is debt consolidation for a newly grad?

There are basically two types of loan available for a student, a federal loan and a private loan. The main difference between the two, aside from their features, is that a federal loan is granted by the government through Federal Student Aid Programs while the latter is from lending institutions and banks.

Amidst a students numerous expenses, he is sure to avail one or maybe both of these loans to finance his study. However, past graduation, he may find it burdensome to manage all his loans. This includes remembering all due dates, keeping track of balances and paying interest at various rates. To relieve him of this tedious task, he may, at his option, avail of a student debt consolidation loan.

Within six months after graduation or if he is already repaying his student loan, a student may apply for a student debt consolidation loan. It is advised, however, not to combine federal and private loans as this will result to loss of benefits attached to a federal loan. Such benefits include lower interest rates, tax deduction for interest paid and lower monthly payments due to longer repayment period.

What are the Advantages?

First, merging all payables into one will allow dealing with a single lender. It eliminates the hassle of getting numerous phone calls from debt collectors.

Second, a fixed lower interest rate is charged as compared to combined variable rates from various lenders. This is especially true if a secured consolidation loan is availed. Here, collateral, say a car, is required to be placed.

Third, repayment period is quite long, about 5-10 years for private loans and 10-30 years for federal loans, depending on the total loan balance.

Fourth, payment scheme is flexible. A student may choose a system that would best fit his monthly income. Lastly and probably the most important benefit one can get is that he can focus on building his career without worrying on payments and good credit standing.

Are there Drawbacks?

It depends. Since interest rates are fixed, the borrower cannot take advantage of lower interest rates in case of deflation. Also, once the loan has been approved, it can no longer be cancelled.

That is why it is important to analyze and check ones financial situation before entering any agreement with a lending institution. Some things that should also be taken into consideration if the borrower is married and is planning to combine his debts with his partner are death and divorce. When the partner dies, the other shoulders everything else, or in case of divorce, they still need to work on splitting the bill.

Choosing the One

There are many credit unions, banks and lending institutions that are accessible through the Internet. It is necessary to search, research, compare and ask around. Past clients can provide feedback on how well the potential lender handled his debts.

Keep in mind that no matter where a person is in the complicated universe of payables and loans, there is always one package that will meet his needs. A student debt consolidation loan may just be the one.