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To Consolidate or Not to Consolidate Your Student Loans

Mar 23, 2008
Find it hard to find unbiased information on student loan consolidation? Let me help with that. When I graduated from college, I had somewhere around $12,000 in student loan debt. Seeing how I would have multiple payments to different lenders, and fearing increasing rates over time (yes, your rate can vary depending on the loan type and the lender), I decided to investigate a potential consolidate student loan. But before I tell you what decision I made, let me give you a few benefits and problems with student loan consolidation:

Benefits

1. The ability to make a single payment with a single lender, thus reducing the headache of paying multiple lenders.
2. Most lenders offer a fixed rate of interest over the life of the loan.
3. Typically, consolidate student loan companies will offer a lower interest rate than many of your current student loans.
4. Lenders will usually offer a longer repayment period, thus allowing for a lower monthly payment.
5. Student loan interest is tax deductible, thus making a longer repayment period more attractive for tax purposes.
6. Some lenders will even offer an interest rate discount for good payers - more on this in a minute.
7. If you are struggling to find a job, many consolidation lenders will allow a deferment of forbearance, allowing you more time to acquire stable income, and may grant a lower interest rate for doing so, due to the lender accruing interest during the deferment/forbearance period.

Problems

1. Longer repayment periods. Yes, I know I mentioned it as a benefit above, but it can also be a problem. While longer repayment periods tend to reduce monthly payments, the overall interest paid over the life of the loan is more, sometimes much more.
2. Unwillingness to negotiate. During my repayment period, I called to ask if an agreement for a principal deduction could be reached or if there was help from other organizations to pay off the student loan, and absolutely no help was provided by the lender. I guess the felt I already got a good deal with an interest rate of 3.5%
3. Default - Do not, I repeat, do not default on your student loan. Bankruptcy, and any other legal attempts to welsh on student loan debt won't work - student loans are like cock roaches, they just will not die. Be sure to pay your student loan back.

Alright, now that we understand a few of the benefits and problems, I am going to tell you what I did. I decided to do a consolidate student loan. I felt there were just too many benefits involved. The company I went with was Nelnet, and they offered a 15 year loan repayment period with 3.5% interest and a 1% interest rate discount if I made the first 36 payments on time. What a great deal! As with all things, be sure to research several different offers before selecting a consolidate student loan company.
About the Author
Get more great finance and investing tips at my personal finance blog. Consolidate Student Loan Benefits and Problems is just one of many great articles you will find at Personal Finance Resources.
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