Many of the students graduating college have several college loans that they will be expected to start paying shortly after they have graduated. These loans generally have varying interest rates and payment dates, making it difficult to keep everything straight while dealing with everything else that life after college throws at you. Consolidating your student loans may seem like the best option but there are some things that you should be aware of about student loan consolidation before making the decision. Here are the facts that you should know about student loan consolidation.
Consolidation Streamlines Your Payments
One of the biggest benefits of consolidating your student loans is reducing the number of payments that you must make each month. The average college graduate can have several loans for each year that they spent in college, resulting in a large number of different payments that must be made when they begin to repay the loans. Trying to remember all of the payment dates can be a big headache, so it is best to simplify the process as much as possible.
Consolidation Allows You To Explore Alternative Payment Plans
If you are having difficulty making all of your student loan payments each month on your current income, consolidating your student loans into a single loan allows you to explore some alternative payment plans that were not available with your original lender. Most standard repayment plans are based on a ten-year repayment period, while consolidation loans can be taken out with a repayment period of 15, or even 30, years. Stretching out the repayment period can lower your monthly payments, but you could end up paying more in interest over time.
Your Overall Interest Rate May Be Lower
When determining what the fixed interest rate should be for a consolidation loan, the lender offering the consolidation loan will use the weighted average of your current loans’ interest rates, rounded up to the nearest 1/8 of a percent. After this determination is made, the fixed interest rate for the consolidation loan may lower your overall student loan interest rate. This could allow you to pay much less in interest over time and pay off your loan earlier than you would have been able to with your original loans. However, if you happen to consolidate while interest rates are falling, you may actually get locked into a higher interest rate compared to one you could secure down the road, and once you lock in that consolidation loan rate, there’s not much you can do to change it.