Student loans function as a vital financial assistance for students who require help with paying for educational expenses. However, once college is over, most students find themselves struggling with their debt. With several loans from multiple lenders, students often have to work overtime to pay off the debt from each lender every month. The only solution to this issue lies in student loan consolidation. Consolidation of the debt helps students pay towards one loan as opposed to several liabilities.
Student loan consolidation refers to consolidating or putting together all the different student loans into one loan. This single loan will be from one lender and with a single repayment pattern. It is similar in concept to refinancing of home mortgage payments. Once the student loan is consolidated, all remaining balances across current student loans get paid off. The entire balance remaining is then rolled over into a consolidated loan. This means that at the end of it, the student needs to pay for only one loan instead of several loans each month. It is worth noting that parents as well as students can consolidate their existing loans.
Lower Interest Rate
There are several benefits offered by consolidation, which makes it a suitable option for students struggling with debt. One of the first benefits of such consolidation is that the interest rate is usually locked in at a significantly lower rate compared to before. This lower rate can help the student save literally hundreds of dollars in the process. The other benefit of consolidating all loans into one single package is that it reduces the hassle of having to pay towards several different loans.
Such consolidated loans come along with flexible terms of repayment, which is a huge advantage to students with limited financial resources. There are no applicable fees or penalties should the student decide to prepay the due amount. This is in sharp contrast to conventional student loans, which have a penalty charge in case of prepayment. In addition, with such consolidated loans, there is no need for any credit checks and neither is there a requirement for co-signers. Hence, such loans come with fewer strings attached and lesser formalities involved.
Method of Interest Calculation
The rate of interest for the consolidation gets calculated through averaging interest rates applicable across existing individual student loans. This rate is then rounded off to the nearest 1/8th of 1%. The maximum applicable rate is 8.25%. It is easy to get the applicable interest rate by visiting any of the lender sites. These sites have online calculators to estimate the rate. Otherwise, it is also possible to ask for a no obligation quote to compare the rates across different rates.
It is best to obtain loan consolidation during the grace period of 6 months or once the loans are being repaid. Ideally, consolidating during the 5th month in the grace period is the best time. In this way, the student need not lose the grace period and receive a low competitive rate for his or her loan.