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Consolidation Offers Long Term Safety Against Student Debt

Jul 15, 2008
Any student who had paid their own way through undergraduate or graduate school can tell you that education can be pricey. However, a good education is something worthy of the high cost. To provide themselves with the skills and knowledge need to gain expanded career opportunities, student loans may be a necessary "evil" that's part of the education process.

One advantage of student loans, and other sources of educational financial aid, is that they typically have a low interest rate. However, even with student loan rates normally ranging between 4.7% - 8.25%, the interest can quickly add up. Many students find themselves over their head in student debt. Aside from acquiring several thousands of dollars of students loans, young couples are often also taking out money for car loans and house mortgages. At a time of life when young people are encouraged to begin saving for retirement, students find themselves in tens of thousands of dollars of debt.

Before we discuss the consolidation of student loans, it's important to understand the three types of funding available: federal loans made to students, federal loans made to their parents, and private loans from a third-party funder. Each has its own advantages and disadvantages, and all should be considered carefully before applying for a loan.

Federally-funded money is disbursed through the US Treasury. Public capital designated for student loans is routed to the Department of Education, where money is sent to the college, and finally the student. Federal student loans are a safe and conservative way to go for students looking to avoid risks.

During 2006, students in the United States agreed to a gross value of loans over $68 million. The top ten loan forms held control over 43% of those loans. In the United States, students loans aren't wiped out by a bankruptcy. Make sure you'll be capable of repaying a loan in reasonable time frame especially if you're training at a trade school where the entry-level salary may not justify the loan.

Debt consolidation is a powerful tool to use in order to bring student loans back under control. A large, low-interest loan is taken out to pay several smaller loans. In the United States, however, federally-funded loan are consolidated differently. Sometimes referred to as "refinancing," federal-funded refinances lock in loans at their current rate to create a new fixed rate for the loan.

The FFELP and the FLDP are the two major student loan consolidators in the United States, allowing debtors to consolidate their debts in a single, long-term loan (around 10-30 years). While long-term loans aren't ideal, they come with low interest rates and are far more convenient to manage than several small high-interest loans.

Direct loans are the most popular Stafford sources for loan consolidation, but Sallie Mae is the nation's leading loan consolidating firm, based on the total overall value of the loans. Citibank, JP Morgan, Bank of America, and Nelnet are popular options across the United States. Competitive rates can be found on the Internet, but should be researched very carefully in order to avoid fraud scams.

When attempting to consolidate student loans, avoid the temptation to find loans with low minimum monthly payments. These consolidated loans typically take an extended amount of time to pay off; with the accumulated interest, the debtor pays far more than the original value of the loan. Just like the original loan process, consolidation should be handled with care.
About the Author
If you have bills from higher education learning visit our Loan Consolidation website and get tips on how to lower your loan bills.
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