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Student Loan Consolidation - Save Money, Pay Less, Spend More
By Rick Braddy
Save Money, Pay Less, Spend More on What You Want? Sounds too good to be true, doesn't it? Well, if you'll spend a few minutes learning about consolidation, you'll soon be armed with enough information to make some really good decisions and help you achieve all of the above, and more.
Student loans are available to students (and parents) in need of help with living costs while studying and working on a degree program. For many students, student loans are their largest source of cash and income (in some cases, their only source). What often happens, is students acquire multiple student loans, then begin to have cash flow problems, which leads to charges on one or more credit cards. These credit cards are typically issued with very high interest rates, often 20% or higher. This is a severely problematic financial trap, and a very tough way to get started in life for a young person who is still in school or just about to graduate.
So, how does consolidation work anyway? Well, unfortunately, too many students leave college with debt that weighs them down heavily, burdening their lives with debt that will haunt them for many years to come. More often than not, students accumulate multiple loans from various lenders. This leads to multiple payments each month, and often several loans with unfavorably high interest rates.
Loan consolidation allows students to combine multipleloans into a single instrument, one loan from a single lender. In effect, this is like refinancing a mortgage or credit card or other debt consolidation - multiple debts reduced to one. The balances of the multiple loans are paid off by the loan consolidation lender,
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and voila' - a single loan payment at a more favorable interest rate. Translation: lower monthly payments, less overhead costs for the borrowed money, and more immediate cash flow to spend on more important items today.
A student should seriously evaluate consolidating loans if the consolidated loan would result in a lower interest rate that the current student loans, especially if the student is struggling to make multiple repayments.
Often times, the merged loan includes a more flexible set of repayment options, plus no charges, fees or prepay penalty. In some cases, there may even be no pesky credit checks, loan collaterals or cosigners involved.
Student loan consolidation can reduce payments up to 60 percent (actual amount saved will depend upon the existing loan interest rates). The other factor is the term of the loans. Typical loans are for a 10 year term. When consolidating student loans, its possible to refinance for up to 30 years (like a home mortgage). It's important that there be no prepayment penalties, since the student will likely want to pay these loans off much sooner, once their earning power is improved after graduating and progressing in a career that pays reasonably well. Of course, the longer the loan period, the higher the interest rate, and lower the initial payments, which frees up precious cash flow when it's needed most - while the student is in school.
So, if a student has multiple loans, typically in excess of $7,500 total, there are many benefits of looking seriously at a student consolidation loan. It's a great way to free up cash flow, pay less each month, and save money while in school.
Rick Braddy is an avid writer, Texas Holdem poker player, professional software developer and marketer. His loan consolidation website provides students and parents with a wealth of free information on student loan consolidation that helps young people better finance their education.
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