Student loan Consolidation

what are the drawbacks of loan consolidation?

June 22nd, 2007 Subscribe To Our Feed

so what are the drawbacks of loan consolidation? There are many things to consider.
what are your current interest rates?

You first need to find out what interest rate you are paying and then compare that to the interest rate you would get if you consolidated your loan. If a loan consolidation will get you a lower interest rate than your existing loans, then a loan consolidation might be a good option for you.

Are your monthly payments manageable?

If you find it difficult to meet your monthly payments, have used up your deferment and forbearance options, and/or want to evade loan default, consolidation can be a great help to you.

How much are you ready to pay over the long run?

As with all loans, extending the years of repayment on consolidated loans ups the total amount you must pay back.

How many payments do you have left on your loans?

If you only owe around 5,000 dollars on your loans chances are the you should not think about consolidating because of the paper work and time involved. However if you are at a very high interest rate and your payments are not managable it will be worth it for you. This is more of a personal preference call.
What consolidation loan benefits do your current lenders offer?

This is often over looked by many people. Feel free and call your current lender up and ask questions. They are there to help you out. Many times they can offer terms and repayment plans that meet your requirements better than a loan consolidation can. This is very true if you are looking at lowing your payment by extending the amount of years.
Benefits of Loan consolidations The main benefits of loan consolidations include:

Replacing payments towards multiple loans with a single payment towards the consolidation loan.
The ability to selecting repayment plans, such as extended repayment, graduated repayment, and income contingent repayment.
The possibility of locking in the interest rate, including the ability to lock in the lower in-school interest rate during the grace period.

The main drawbacks of loan consolidation include:

Obtaining a loan consolidation during the grace period means that you must begin making repayments right away, and cannot use up whatever is left of the grace period. This might include interest benefits on subsidized loans.
Perkins loan borrowers might lose some of this loan’s favorable loan forgiveness provisions when it becomes part of a loan consolidation.
Extending the repayment term may increase the total interest paid over the period of the consolidated loan.
As the law stands right now, a borrower can opt for loan consolidation only once. This means that if, in a couple of years, interest rates go down, a borrower who has already undergone loan consolidation cannot reap the benefits of the lower interest rates.
The perks offered for electronic funds transfer and on time payments tend to be less for loan consolidation holders.

Alternatives to Loan Consolidations

Even though a loan consolidation simplifies the repayment process, it does involve a major drawback: a slight increase in the interest rate. Students who are experiencing difficulty making monthly payments should consider some of the alternate repayment terms provided for federal loans. Examples include:

Income contingent payments can be adjusted for a lower monthly income
Graduated repayment allows for lower payments during the first two years after graduation
Extended repayment allows for extension of the term of the loan without consolidation

Now the next time you here someone ask, what are the drawbacks of loan consolidation? You will be able to tell them. Feel free and post any other adivice or personal experiences you have.