Signs that You Should Consolidate Your Student Loans

There are signs that you should be aware of to see if it's time to consolidate your student loans

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If you’re headed off to college, chances are good that you’ve decided to take out student loans (check out our guide to student loans here). More than half of all US undergraduate students receive some form of financial aid, with this number climbing sharply. Student loans have become a rite of passage for many undergrads, much like the college experience itself. A good amount of students find themselves swamped with debt after college as a result of the loan process, but if you go about it the right way initially, there’s really nothing that can cause extra stress. One of the more important decisions you’ll make is whether or not to consolidate a loan.

Student Loan Consolidation

Simply put, this means you’ll combine multiple lines of debt into one, leading to only paying off this singular loan instead of, say, three or four. Some students prefer this route of repayment, finding it more straightforward than trying to keep track of multiple loans at the same time. In addition to this simplification, loan consolidation often has auxiliary benefits, like longer repayment periods and making you, the debtor, eligible for quicker loan forgiveness.

Why You May Consolidate Your Loans

Deciding whether or not to consolidate your student loan is a personal choice. Some students find that it makes more financial sense to keep different lines of credit open instead of pushing them together under one umbrella. It all depends on your particular economic priorities. For example, a major plus of loan consolidation is that, by combining different lines of debt, your repayment period will often be extended. According to the Department of Education, this timeline can be as long as thirty years, a huge relief to anyone struggling with their financial planning.

Instead of having to figure out how to pay off three separate loans in the same ten year period, you’ll have your burden greatly eased by adding these all to the same line over thirty years. However, nothing involving student loans is without its drawbacks. By extending your repayment period, you’ll probably be subject to higher interest rates. This means you’ll have to task yourself  with this question: am I more concerned with my immediate economic future or my long-term financial security? Your answer will largely shape your decision to consolidate any loans you have.

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Is Consolidation Right for You?

Additionally, you’ll have to consider the rate of your initial loan, and whether or not you want to change it. With loan consolidation, you’ll often have the option to switch a variable-rate loan to a fixed-rate loan. The former option sees its interest rates fluctuate depending on the economy and the loan market, while the latter locks you into one rate for the duration of your loan. Either option is a gamble, and it’s best to heed the recommendation of a financial advisor or accountant before making a decision that takes into account the future of the economy at large.

Finally, consolidation is, of course, a change to the contract you originally signed with your creditor. This means that by altering your loans, you may lose certain benefits that were originally provided by the company or government. It’s always important to read the fine print and make sure you don’t get blindsided by a giant line of debt. The question of loan consolidation is a very important decision, and it’s best to have all the facts before you make your final determination.

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