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Student Loan Consolidation 101

May 17, 2008
For a student with numerous loans hanging over his/her head every month, Student Loan Consolidation does sound like a breath of fresh air, a relief from all the pains of budgeting ones finances every month to meet different interest rates and payment deadlines.

Yes, loan consolidation does have its advantages, but just like everything else in life, it also has its own set of disadvantages. As enticing as each offer is, we have to keep in mind that loan consolidation is not for everyone and that although it is a good way of minimizing the bills we have to pay each month, it is still another form of debt.

The easiest way to reduce student debts...

We see this tag line on almost every student loan consolidation advertisement. But the question is... how exactly does it make it easier for us to reduce student debts?

Student Loan Consolidation is putting all your student loans together to form one new loan. No more worrying about varying interest rates and payment deadlines. Your loans are as good as paid and all you need to worry about is to pay the company or vendor with whom you consolidated your loans with.

By minimizing the number of payments or bills you have to pay in a certain month, you are able to manage your finances better and allocate them to other important expenses. It will also allow you to concentrate more on your books, exams and deadlines.

Lower interest rates...

With a new loan comes the promise of lower interest rates. True enough, consolidated loans do provide lower monthly payments, because the payment terms can be extended up to 30 years. Another perk of consolidating your student loans is that it is a fixed rate and you need not worry about the fluctuating interest rates.

Before you allow yourself to be swept away by promises of lower payments or interest rates, you also have to consider your current debts or loans. The computation of the interest rate on a consolidation loan is this: the weighted average of the interest rates on the loans to be consolidated, rounded to the nearest 1/8 of a percent with a cap of 8.25%

When computing for the interest rate of your loan-to-be, always keep in mind that the weighted average does not alter the real cost of the loan. The good thing about interest rates in a consolidated loan is that it's a fixed rate, thus, the amount of interest you pay on your loan will always remain the same.

No Cost to Consolidate

Just say "No Cost" and you're sure to capture a lot of people's attention. One of the added benefits of loan consolidation is that there is no cost to consolidate your student loans.

Am I eligible to Consolidate?

Now, this is an important question.

Right now, you may already be banked on the idea that Student Loan Consolidation is the answer to your prayers. But before you take the plunge, you have to check if you are eligible for this man-made 'miracle' that is Student Loan Consolidation.

Are you a student or a parent with an educational loan?

If so, then, yes you are eligible to consolidate your loans. Students and parents cannot combine their loans, but they do have the option of consolidating their loans separately.

Are your loans in grace period or repayment status and have been fully disbursed?

If the answer to this question is also a YES, then you are eligible.

Are you still in school and have not entered the grace period or repayment status?

If your answer to this is a YES, you are NOT eligible for loan consolidation.

You also have to check if your loan amount meets the minimum loan requirement of the company with whom you would like your loans to be consolidated with. Minimum loan requirement is usually at $10,000 USD.

Once you have determined your eligibility for student loan consolidation, the next step is to determine which offer to take.

If you wish to compare different student consolidation loans, you may visit: http://www.simpletuition.com/. This site will provide you with pros and cons of going through with a loan consolidation and calculate your loan options as well.

There are many other aspects to delve into when it comes to loan consolidation. Especially since it concerns your finances, but the key is to educate yourself. Conduct a vicarious research on all things regarding student loan consolidation. Compare the interest rates of available providers so you can make sure that you have the best one or if you really need one for that matter.

Remember, whatever decision you make now will make a resounding echo on the future of your finances, so weigh your options carefully.
About the Author
Jack Vallieres is the professional freelance writer. He's also the webmaster of Loan2solution.com
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