by Anza Goodbar
(last updated November 22, 2011)
Loan consolidation may lower monthly payments on your school loans. Many Federal and private loans are eligible for consolidation; however, if you have all of your loans through one company, they may not be, check with your lender for applicable program rules.
Take time during your grace period to review your options. Be sure to read the fine print before making your final decision. If you choose to consolidate your federal loans during your grace period your interest rate will be .6% lower than your current loan, but you may lose the six month grace period and have to start making payments right away.
Some lenders will offer a one-quarter percent reduction in interest rates when you consolidate if you set up electronic bill pay. Ask your lender if this is a program they offer. Some lenders will also offer a reduction in interest rate after 6-12 months of on time payments.
If your lending institution does not offer a consolidation option, check with your school's financial aid office, they have resources for other lenders that could help. Look carefully for a lender that meets your needs.
Federal student loans differ from regular consumer loans; they do not require a credit check, so approval and processing can take place on a shorter time frame. Most institutions' interest rates have predetermined by the government. Government sponsored consolidation loans can take up to a month to complete with some lenders so take note of the dispersion date and what that rate will be before taking the loan option.
If you are married, it is advised not to lump both sets of loans into one loan. Should the couple divorce before the debt is paid off, both parties will still be responsible for the debt. Student loans are only forgiven upon the death of one or both parties.
If you cannot find a student loan consolidation program that suits your needs, you can also consider taking out a personal loan to bring your balance to one payment.
If you have racked up between $30,000 and $100,000 in debt, a consolidation program could save you up to $500 per month. A reduced payment could certainly help make your budget more manageable while you get established in your career. Most consolidation programs do not have a prepayment penalty so you can pay if off at any time. You can also take a deduction on your federal taxes for interest paid on your consolidated loan.
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