Why Consolidating Student Loans is Worth considering

Most college kids will tell you that all they remember about signing up for their student loans is that they were happy they got money for college. Many will also tell you they didn’t put much thought into having to pay that money back. As another graduation season is upon many soon-to-be college graduates, reality is starting to kick them in the face. They can see now that the job market in many industries is tough and soon enough, they will be required to star making payments on their college loans.

This repayment may be hard to do when a recent college grad has no source of steady income. The average college student has at least $22,000 in student loan debt. While financially struggling graduates can apply for a deferment due to financial hardship, that deferment can only last for so long before payments must resume. There is certainly no way to just walk away from your loan obligations.

Another strategy to consider is loan consolidation. While this can certainly help make more manageable payments, there are also some drawbacks, including:

Can’t Consolidate Different Loan Types

If you have a mixture of federal loans and private loans, you will not be able to consolidate them together.

Rates Have Changed

Prior to 2006, federal student loans carried a variable interest rate. Consolidating these variable loans used to help students lock in a fixed rate and make it easier to pay back the loan. Since the change, there is not really an advantage of consolidating federal loans other than having to make only one payment.

Consolidation Can Help Lift Burden

If you do not always have the cash to meet your monthly obligation, consolidation can help you now but add additional payments into the future. Your payments under a consolidation plan will likely be less and more manageable but it is a trade-off because the additional accrued interest and the extension period of the loan will likely cost you thousands of dollars more throughout the life of your loan.

Timely Advice

Experts predict that interest rates will fall after July 2009 to an all time low. If you are considering student loan consolidation, try to hold out until that time to get the best rates.

Change of Payment Plan

Effective in July 2009, student loan holders with federal loans can choose to apply for the new income-based repayment plans. If you anticipate having an entry level job that doesn’t include a high salary, this may be the plan for you. Anyone with student loans is eligible and payments will be based on a percentage of the loan holder’s income.