Student loans play a great role in helping students to pursue their higher education. There are loan offers to either offer funds to cover a part of the expenses or the entire expenses due for higher studies. Since the cost of education has been consistently increasing, the students have no other option than loans from federal government. However, these loans are to be repaid when the students complete their education and here starts the stress for most of the students.
The student loans which were considered blessings while at college turn to be nightmares after graduation. Documents related to loans should be kept safe and the students need to review them frequently to understand the size of the loans and the responsibility that is tied with the loans. Good knowledge about the features of your loan and the interest rates and other charges associated with the loan will help you understand the amount of debt you have. This understanding will make you focus your thoughts on ways of clearing the loans at the earliest.
Does loan consolidation help in reducing the size of the loans?
One of the ways to reduce the size of your loan is to opt for consolidation loan. Your interest rates are fixed with loan consolidation. The borrowers need not be concerned about the fluctuations of variable interest rates. With fixed interest loans, you can know the size of your loans and this will help in the draft of a proper schedule of payments towards the loan. You can also understand how long it will take to settle the entire loan amount. The consolidation process varies according to the type of student loans availed. The Stafford loans that are guaranteed by the government are consolidated with very low interest rates.
Consolidation of student loans results in lowering monthly payments. Consolidation with lower interest rates reduces the size of the loan. However, all the federal loans are not offered to the extent of covering the entire cost of loans. In such cases, the students need to take loans from private lenders. Since these loans are not guaranteed by the government, and the consolidation is to be processed through the financial institution from which source the loan is availed. Whether the loans are from private lenders or federal government, depending on the type of the loan and the scheme of repayment, you can make calculations to know the size of your loan.
If the interest rates are lower than the consolidation loan interest rates, the size of the loan is greatly increased and you end up repaying more. The size of the existing loans should be considered before thinking of consolidating them. If your loans are small in size and if you group those loans for bad credit into a consolidation loan, more interest is added to the loan and the term of the loan is also extended. It is not a good move to consolidate the loans if they are small in size, since it is easier to clear the loans of smaller amount than to increase the size of the loans by opting for consolidation.
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