Avoid the Pressure: Consolidated Student Loans

Entering the workforce after graduating from a two or four year program, most students find that paying back student loans within the 10 year allowable time can be a real challenge.

Studies have shown that many students do the following within the first 10 years after graduating:  purchase at least one vehicle, change jobs at least once, have at least one child, most likely buy a house, and even get married.

All these expenses can be difficult to manage on top of various federal and private school loans that may be outstanding.

You can, however, combine your student loans by borrowing money, also known as consolidating, to continue paying them off by only paying one payment on one larger balance with a longer term loan. Most previous students, as well as ones still in school, have the option to consolidate their student loans as long as they have some form of income.

To consolidate student loans it is important to consider all your options and to understand how the various interest rate differences on the original and the consolidation loan will compare over the long run.

Advice can be given to help consider and understand both the advantages and disadvantages of consolidating your student loans.  This advice can be given by a variety of people including a financial planner, consultant, or ever your personal banker. Consolidation's biggest advantage is that it takes one payment a month, rather than many, by paying off all of your loans. leaving you with one payment to make to the consolidated loan lender. It is safe to assume that you will pay less per payment by consolidating compared to the original multiple payments.

The logical reasoning behind this is that your “pay back” term is expanded, therefore you pay less per month over a longer period of time. In terms of student loans, the disadvantage lies in the longer term loan which in some circumstances could take up to 30 years to repay. This means that over the life of the consolidated loan you will pay significantly more in interest, which may be a huge dollar amount if you actually make only the required payments.

You can also lower the interest amount by paying more than the minimum monthly payment.  However, it is important to distinctly specify that the extra payment is strictly for the loan principal. This will rapidly cut payments off the duration of the loan, especially if you start right when the consolidated student loans are put into place.

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