Attending college is an amazing experience and can open up endless opportunities for students. However, it comes at a price. College is not cheap, with over $1.5 trillion collectively borrowed to attend and graduate. Due to the high cost of college, close to 1 in 10 people default on their student loans.
To help reduce the burden of federal loans, many people are applying for a Direct Consolidation Loan to make it more manageable. A loan consolidation is when you combine all your student loans into one loan from a single lender. Here are some of the main benefits for consolidating your student loans:
1. Single payment: When consolidating your loan, you’re combining all your existing loans into one. This means you’ll have one lending institution and only one monthly payment. This can make your life more organized and simpler by reducing the stress of dealing with multiple lenders.
2. Reduce the risk of default: When you consolidate your loan, you can also alter your payment terms which can lower the amount you pay each month. If you were previously having trouble making your payments on time, this will help you breathe a little easier. Defaulting will do serious damage to your credit score, so consolidating your loan and reducing your payments is a good way to avoid this catastrophe.
3. Fixed Interest Rates: with different loans from different vendors, odds are you also have different interest rates – with some better than others. Consolidating your loan into one means you have only one interest rate. Consolidated loan interest rates are calculated on the average rates of your existing loans, which can potentially reduce your interest payments.
4. Lower your payments: Consolidating your loan gives you the opportunity to extend your loan terms. The longer your loan term, the lower your monthly payment will be. You can extend your loan from 10 years to anywhere between 15 – 30 years, potentially reducing your monthly payment by half.
5. Different repayment plans: When you consolidate, there are a number of repayment plans to choose from. Options range from Standard 10-year loans to Extended 25 year loans. There are Graduated Loans, which start off low and increase over the term of the loan, and Income-based loans, which take a percentage of your working income
6. More deferment and forbearance options to choose from: A consolidated loan is essentially a brand new loan, meaning that your deferment and forbearance options are restarted. For those who are job hunting, a Federal Consolidation Loan will also give you the option to apply for deferment, which enables you to delay payment while undergoing financial strain.
7. No need to worry about maximum or minimum requirements: The great thing about consolidated loans is that there is no minimum amount needed to qualify, and also no maximum amount that can be consolidated.
8. Maintain your credit score: if you consistently repay your student loan this will have a positive impact on your credit score. However if you miss even one, it can have a negative effect. Paying only one monthly payment each month will reduce the likelihood of missing a payment and damaging your credit score.
9. Automatic payments: If the main reason you’ve consolidated your loans is to ensure you’re able to maintain your loan repayments, you might want to consider automatic debit. You can set up automatic debit to pay your bill each month and ensure it’s paid on time every time.
10. Discount on your loan: By following the above step and setting up an automatic debit, you might be in line for a discount from the bank on your interest rate. It’s in the banks interest for you to set up automatic payments as it increases the likelihood of them getting paid. Some banks will even offer up to 1% discounts after 3 years of consecutive on-time payments, saving you a lot of money over the loan term.
If you’ve missed a payment or looking likely to do so in the future, consolidating your loan might be the right option for you. Consolidation has a number of financial advantages and can also make your life more manageable. Reduce your financial stress and look into how consolidation can help you.