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After graduation, many students do not realize the
total amount of student loan payments they will be
responsible for every month. Several smaller loan
payments can add up to a substantial amount of money
each month. While the interest rates for student
loans are great, and the education received as a
result of the loans is worth the inconvenience of
loan payments, many students will still need to
research ways to make their student loan payments
more manageable.
Fortunately, there are several worthwhile options for
borrowers who find that they need some help in adjusting
their student loan payments to fit their income. One
such option is student loan consolidation, which is
simply combining all of your student loans into one
lender, and therefore making one monthly payment.
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Should You
Consolidate?
If you find
that you are having trouble meeting all of your payment obligations
every month, you may want to consider consolidating all of your
student loans into one monthly payment. The payment is usually
smaller under consolidation, which is beneficial if you want to
reduce the percentage of your income that is used to pay your
student loans. Another reason to consolidate, especially if you have
an adjustable interest rate loan, is that you can often lock in an
interest rate under consolidation. You will want to be very careful,
however, not to mix private and federal student loans together when
you decide to consolidate; because when you do so, you will lose all
of the tax benefits available to you with your federal loans (such
as the tax deduction for interest paid).
Another factor
to consider with student loan consolidation is that by reducing your
payments and lengthening the term of your loan repayment, you will
be adding to the total amount of money you will be repaying; so be
sure to pay any extra amount on your payment that you can, if
possible.
Beginning the Consolidation Process
Once you have
decided to begin the consolidation process, the most logical option
is to contact one of your current lenders. Most of the lenders for
federal student loans will be happy to buy out the loans from your
other lenders and consolidate them for you. Be sure that you ask
about the difference between private and federal student loans;
because many lenders treat them very differently during
consolidation. You may also need to specify that you are interested
in locking in the lowest interest rate possible for the life of the
loan. If you are a married borrower and your spouse also has student
loans, the lender may suggest that the two of you consolidate all of
your loans together, for one lower monthly payment. Be extremely
wary of this option: by combining all of your loans into one, you
are taking joint responsibility for the debt. This means if one of
you dies, the other spouse continues to be responsible for the loan;
it also means that, in cases of divorce, you must go through the
process of attempting to divide the debt.
There are many
companies that will help walk you through the process of student
loan consolidation; however, make sure that you are well-informed of
the actual process before you sign on with any one lender. Student
loan debt does not have to severely affect your finances, and
consolidation is a great method of managing this type of debt. As
long as you have researched all of the options of consolidation, and
you have also well-researched your lender options, you can go
through the process of student loan consolidation assured that you
are making a very wise financial decision.
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