Student loan payments can be lowered if the borrower consolidates.
Student loans can be a heavy burden for those who have recently graduated and still have low incomes. Some students have taken out loans from a variety of sources in order to make it through college--and these loans virtually always come with interest rates, some of which can be cripplingly high. Loan consolidation at a fixed rate can help combine these loans and save on payments.
Basics
Consolidation is the practice of combining different loans into one loan. This does not mean borrowers can join student loans together. Instead, they take out a new loan, such as a second mortgage, and pay off the student loans with this new loan. Various lenders, including many which offer student loans, offer these consolidation loans to help students who have too many types of loans.
Advantages
Loans can be either adjustable or fixed. A fixed rate loan is desirable because its monthly payments will never change, while an adjustable rate will go up throughout the life of the loan, increasing the payment amount. With a steady rate, borrowers can easily compute how much their monthly payments will be. The new rate may be a better deal than the collective rates and amounts of the student loans, saving the borrower money.
Private Vs. Federal
Private loans typically have higher interest rates than federal student loans. This actually makes private loans easier to consolidate, since there is more of a chance that the new loan will have a lower rate and lower payments.
Other Benefits
Consolidation also combines all student loan payments to one payment. This simplification can be very beneficial to borrowers, who may be in a better position to make only one payment instead of several. It also helps new borrowers arrange their finances and budget out money more easily, leading to consistent, dependable payments that build up good credit. This works best with fixed-rate loans, which are unchanging and do not lead to unpleasant surprises.
Considerations
Consolidation does come with a price. Creating a new loan can come with hefty origination fees. Also, a new loan comes with a new term, which means it will usually last longer than the student loans left as they are, even if it does lower monthly payments. Fixed rate loans depend on market conditions, and the rates offered for such loans may at times be too high to make consolidation worthwhile.
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