The Truth About Student Loan Consolidation

The Truth About Student Loan Consolidation Related Information:

Students who have federal student loans can now consolidate all their different loans into one loan from a single lender. The interest rates on student loan consolidation are lower than ever before and it may be very advantageous to students to take this opportunity to lower their monthly loan payments.

There are a lot of rumors and fallacies about student loan consolidation that are often very confusing. In an effort to uncover the truth about student loan consolidation, here are some facts about loan consolidation that can be useful in dispelling the rumors so that students can make an informed choice about loan consolidation.

1) There is a fee for student loan consolidation.

If any lender tells you that there are certain fees for applying for the consolidation loan or upon receiving it, they are misleading you or trying to cheat you out of some money. Federal rules do not authorize lenders to charge those applying for a student consolidation loan any fees to acquire this loan. In fact, some lenders offer payment incentives that can lower the overall cost of repayment, but cannot charge any fee.

2) You have to apply for the consolidated loan before you miss the deadline.

The federal student loan consolidation program does not have any fixed deadline. You can apply for a loan consolidation anytime during your grace period (A grace period is the time given after the end of school or college, before the repayment period begins) or the repayment period.

Applying during the grace period however gives you an advantage. During this time the interest rates on the consolidated loan are calculated according to the in-school interest rates that are lower than the out-of-school interest rates that will apply if you take the loan after the grace period is over.

An important date for student consolidation loans is July 1. This is the date when the interest rates for the Stafford Loans are set. So if the rate is set to become higher as on July 1, you can apply for the consolidation loan earlier and if the rates will be going down; you can take the consolidation loan after that date. So although July 1 is an important date, it is definitely not a deadline.

3) A federal student consolidation loan can save you money.

Now this statement may or may not be true. When you take a consolidation loan for your federal student loans, the interest rate that you pay on the consolidation loan is lower than the student loans. But your repayment term usually becomes longer and thus even though you are paying less money every month; you can end up paying a lot more in the long run.

However, if you are lucky enough to get a consolidation loan at a time when interest rates are below the average rates, then you could end up saving some money. And along with the lower interest rates, if you repay the consolidation loan in the same time as you would have your federal student loans; then you can save a considerable chunk of money by taking a consolidation loan.

Is A Consolidation Loan For You?

Taking a consolidation loan may not make the total cost of your loans lower, but it can definitely be of big help to those who wish to have more disposable income in the present. With the lower monthly payments, you will have more money left over each month, which you can use for purposes other than paying off your loan. Thus you can start your life in the present and not have to wait till the future when all your loans will be paid off.