Consolidating Student Loans

Consolidating Student Loans- A Few Words of Caution

Taking out student loans to attend college has become a necessary evil since the costs of attending an institution of higher learning have skyrocketed in the past 30 years. College costs have been rising at double the rate of inflation during that time. Very few people these days can afford the $50,000 per year it takes to attend a private college, and even state schools cost an average of $20,000 per year. Consolidating student loans

is a very common thing to do when a person finishes college and gets ready to find a job and start paying back student loan debt.

There are a number of benefits associated with consolidating student loans. The most obvious are that the borrower only needs to deal with one loan, and the monthly payments on that loan will almost certainly be lower than those on the individual loans the borrower has taken out. This article will mostly discuss consolidating federally guaranteed loans, such as PLUS loans, Stafford loans and Perkins loans. As for private student loans, it is possible to consolidate those as well, but whether or not you can do so is up to the lender who is under no obligation to do so. Recently with tight credit markets some private lenders have been refusing to consolidate student loans and if they do, the interest rate is usually higher than the borrower had been paying on separate loans. Students would do well to avoid taking out any private loans if at all possible. Federal loans are always better for the student borrower than are private loans.

Perkins loans, which are loans made by institutions to students with particular need, will have the best interest rates and the best benefits for borrowers. These benefits even include the possibility of loan forgiveness under certain circumstances, such as working as a teacher in areas that have teacher shortages, military or government service, and several other occupations. If you have a Perkins loan you should make absolutely certain that you are not giving up these benefits by consolidating your Perkins loan with some other type of government loan. Borrowers also need to be aware that consolidating student loans can only be done one time. So after that you are stuck with the loan, the lender and the interest rate on the consolidated loan for the duration. And the duration means until the loan is paid off. Even if bankruptcy is declared, student loan debt will not be dismissed.

If you ever find yourself in financial difficulty such that you cannot make payments on your consolidate federal student loan, you need to be aware that you have certain rights. You might be able to qualify for a deferment or for forbearance to buy yourself time to get your finances back in shape and start making regular payments again. You can also change your repayment plan to have lower monthly payments based on your income. These can be as low as $25 to $50 in some cases. Of course all these tactics are a way to buy time and lower monthly payments for a while. You will end up taking longer to pay for your loan which means you’ll be paying more interest. So it is best to avoid these options if possible, but anything is better than defaulting on your student loans.

The last word of caution is this. After consolidating your student loans make sure you never go into default. You will incur huge penalties for late payments, default penalties, and collection fees. On top of that you will be harassed by collection agencies that have you over a barrel. If you have earned a state professional license, that will probably be revoked by your state. Many millions of people have defaulted on student loan debt in recent years and are shocked to find that they owe 3-4 times the amount they originally borrowed. Many are simply overwhelmed by their student loan debt. So consolidating student loans can be a beneficial thing, but borrowers need to be aware of the dangers of student loan debt and know their options.