The incredible costs of a full year college education and graduate school means that many students resort to loans. While borrowing often begins with low interest Federal loans, many students are left to make up the difference with loans given by private entities like major banks. Maintaining control of this debt can make or break a graduate's future, especially since private loans can never be discharged in the event repayment becomes impossible. There are several proven strategies for chopping down the monthly payments on private loans, and consolidation is one of them.
Private school loans include all debts given to a student, and often their co-signer, by organizations not connected to the Federal government. Wells Fargo and Sallie Mae are historically major providers, but many banks and private lending firms have dipped into the student loan business over the years. Unlike government backed loans, interest is generally higher, and the consequence of letting these loans spiral out of control is more punitive. There are no forgiveness programs with private school loans, though providers may sometimes offer credit options to pay down debt at a faster rate, or slash interest rates for good behavior.
The nature of private loans makes it vital to pay them off quickly and efficiently. While debt consolidation does little for Federal loans, where interest rates are fixed and relatively low, it can mean a world of difference for private education debts.
Whenever you move to consolidate student loan debt, you decrease monthly payments in exchange for a longer repayment time frame, which often relieves the immediate pressure of making high regular payments. Consolidation is only an option when a person has multiple loans in their history. Since the average college education is paid for with separate loans disbursed each semester, sometimes by different lenders, consolidating many loans can make many situations more manageable.
The benefits don't stop there, though. Most lenders who agree to consolidation recognize that the action is being taken to lower monthly payments, and they agree to do this, in exchange for extending the time frame of repayment, allowing them to collect more interest over the extra years. In many cases, co-signers can be removed during the consolidation process as well, potentially easing family relations with relatives who previously backed up a student borrower.
Like any major financial decision, consolidating private school loans should be used when your situation really warrants it. If payments are difficult to make, or they exceed 10% of your income, consider looking at consolidation. To have a viable chance at consolidating, your debt balance typically needs to be above $5000. Remember that consolidation is only beneficial with private loans too. It's not possible to combine private and government loans into one package.
By using consolidation strategies wisely, you can make student loan repayment much less painful than it would otherwise be. Immediately pursue consolidation if it doesn't look like you'll be able to keep up with your loans. While it's never good to rush, defaulting on private loans is incredibly damaging to long term credit, and consolidation is designed to help prevent this from happening.