Education is becoming increasingly expensive and many parents simply do not have the income or savings to pay for college tuition for their children. The alternative is for the student to use loans that are readily available for people that keep their grades to an acceptable level.
Over the course of three or four years these loans can add up and some people look at using private student loan consolidation to give them some breathing space to get into a job and start earning a descent income. These loans can be helpful but it is important to understand how they work and why they may not be the best option for everyone.
What Is Private Student Loan Consolidation?
- This is a loan that is taken out for the specific purpose of consolidating separate student loans into a single loan and a single monthly payment.
- It is normally for a reduced monthly amount that makes it much easier to meet the commitment required. This is because it is paid back over a longer period. The longer period of the loan can mean you end up paying more that if you kept to the higher monthly payment current student loans.
- It is advisable to have a fixed rate loan because this will lock in the rate. A variable loan is generally slightly cheaper but if rates move higher at any time during the life of the loan then you will have to pay a higher monthly rate to compensate.
There are a range of things that you need to be aware of when you are considering student loan consolidation. If you consolidate loans that have special conditions then you may lose the ability to claim them. Before committing to the loan first thoroughly check the original loan documents to check for conditions you have agreed to. Here are some common things that people make mistakes with.
- If you consolidate your federal student loans with private student loan consolidation you will lose all benefits that the federal system gives you. This can include forgiveness of debt for certain defined employment options and repayment bonus’s.
- Check for pre-payment penalties that can make paying of the loans earlier attract penalties because of interest lost to the lender.
- You may have already received a rebate from your current lender on fees for part of the loan. In some circumstances if you consolidate the loan then these fees may have to be repaid increasing the amount owed.
- Carefully check the terms of your current loans. When compared to consolidation loans they may be offering you a better deal. This may be more difficult to see initially because the longer term has made the monthly payment cheaper.
- If you are considering joining the military then federal loans may be fully or partially forgiven while private student loan consolidation does not qualify.
The Future and Student Consolidation Decisions
It is getting more common for graduates to study full or part time in Master’s and Doctorate programs. One of the difficult situations that can arise is if a consolidation loan has been used in the intervening period. This can make deferment of the loan while enrolled as a graduate difficult or impossible. This needs to be carefully considered because it can mean that further study becomes untenable until the loans are paid back in full.
Conditions of Consolidation Loans
Each loan may have its own conditions specific to your circumstances so you need to be aware of them and make sure you have everything in order for the loan to be granted.
- In most cases it takes approximately three months for the process to complete, approval to be given and for the funds to be forwarded.
- The consolidation company will forward the funds directly to the nominated student loan entities.
- It can be very difficult to consolidate loans that are behind in payments or in default. Generally if the loans are caught up then they will proceed.
- There are no requirements to have a large number of loans to obtain a consolidation loan. In most cases two or more loans are all that is required.
- Government back consolidation schemes generally offer better rates but will not cover private student loans.
- In most cases lenders will not consolidate a loan a second time. This applies from the same lender or a new lender. This should be kept in mind because wasting the chance to consolidate when it is not really needed can make things more difficult later when it would have been much more advantageous.
If you are looking at private student loan consolidation then it is a very good idea to shop around checking out the offers from different sources. There are many lenders that service consolidation loans and comparing offers can save a lot of money once the full amount plus interest is paid back.