Debt Consolidation Loans

Get to the truth about debt consolidation loans.

Private Student Loan Consolidation

A higher education comes with a hefty price tag. Depending on the length of a person’s college tenure, it’s not unusual to owe tens of thousands of dollars upon completing a baccalaureate degree. A post-graduate degree can cost over one hundred thousand dollars.

Most folks take out private loans to pay for college and the associated costs of a degree, like books, rent and food. These private loans are usually for ten to twenty years and have a high interest rate. The interest rate is high because students haven’t had a chance to establish a healthy credit rating at this point in their life. Without a verifiable payment history, they’re at the mercy of their lenders.

Numerous loans will usually mean numerous lenders and several monthly payments. More payments equal more chances to forget or fail to make your payment. That will increase the interest on any subsequent loans due to a less-than-perfect credit history.

Consolidation Keeps It Simple

There are several benefits to consolidating private student loans. The most obvious reason is to simplify the repayment schedule. One payment is much easier to remember than four. That payment can usually be set up so it doesn’t interfere with other bills. A static monthly payment date keeps the repayment process simple.

Another benefit is a lower monthly payment. A consolidation loan typically lasts thirty years. That significantly lowers the monthly rate. During the consolidation process, the lender will usually offer a lower interest rate than the previous lender. On occasion, an employed, recently-degreed worker might have established a credit history, resulting in an even lower interest rate. Lenders are likely to grant a lower rate with an increase of fifty to one hundred points.

Even if the newly employed graduate can afford the original payments, a consolidation loan can free up cash. That money can be used to lower the balance on higher interest debts, such as credit cards or unsecured loans, lowering the payments on several monthly obligations. Plus the interest on credit cards and personal loans isn’t tax deductible while the interest on student consolidation loans is deductible. Up to $2500 can be claimed yearly on federal tax returns.

When consolidating the private loans, a fixed interest rate loan can remove the uncertainty of a variable rate loan, giving a reliable monthly cost. That helps a new graduate set up a personal budget.

What Lenders Look For

Lenders have their own established criteria for private student loan consolidation. All of them require a minimum debt ranging from five to ten thousand dollars. Below that level, the lender doesn’t feel it’s worth a twenty or thirty year loan.

The maximum amount that can be consolidated varies by company, ranging from $100,000 to $300,000. Some companies don’t require a co-signer if the graduate has good or average credit. However, a bad credit score may require a co-signer. A co-signer with excellent credit can usually procure a better interest rate. Some companies will even release the co-signer from the loan after thirty-six months of timely payments.

If the recent graduate is unemployed or underemployed, a graduated payment program can free up even more cash. Graduated payments begin low, with the payment covering the interest only. After a predetermined limit is reached, the payment increases, with part of it being applied to the principal. Depending on the lender and the amount of the loan, graduated payments can unfold over the course of ten to twenty years or as quickly as five years.

Another nice thing about student loan consolidation is that the lender usually permits prepayment of the principal with no penalty. That way, if the debtor has a sudden increase in fortune, the principal can be lowered quickly.

Federal loans are not eligible for inclusion in a private student loan consolidation. Those loans receive very low interest rates. It wouldn’t be sensible to bundle them together with private loans.

A Constant in a Time of Flux

Students walk away from their college days in a financial daze. Competition for employment is fierce. The transition era from college to working adult is an uncertain time of flux. Grads are learning how to budget, how to shop and how to build a credit history. A private student loan consolidation provides slight relief at a time when any relief is welcomed. That breathing room can make all the difference.

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