After graduating from college, you may end up with several student loans that you must repay. Some people will have private loans, federal loans or a mishmash of both. It is up to you to know how much you owe and the period that you will be required to pay your debts. If you have several debts from different lenders, then you can opt for consolidation. Here are 5 questions that you should ask yourself before you settle for student loan consolidation.
What type of debt consolidation should I go for?
Depending on the type of student loans that you have, you can opt for a federal direct loan consolidation or a private loan. A direct consolidation loan is ideal for graduates with direct loans, subsidized or unsubsidized loans, Federally Insured Student Loans and PLUS loans. You can also opt for a consolidation loan from private lenders. Make sure that you research on the available options and settle for one that will suit your needs and financial goals in the long run.
How are the interest rates calculated?
Your loan will be charged using a variable or a fixed interest rate. Variable rates tend to fluctuate depending on the prevailing interest rates. You can get a lower rate on your student loans with a variable loan. However, the rates will vary over the entire life of your debt. With a fixed interest rate, the interest that you pay will be constant irrespective of the prevailing interest rates.
What will be the new loan term?
The length of time that you will pay your new loan will be different. Usually, you will be required to choose between different options from 5, 10, 15 or 20 years. Ensure that you choose a loan term that you will be comfortable with. A longer repayment period results in a low monthly repayment and higher interest rate. Choose a loan term that suits your financial needs when making a decision.
Are there additional charges?
The lender that you opt for your loan consolidation may charge an origination fee for your student loan. In addition, some banks will also charge you for missing a monthly payment or defaulting on your new loan. Some financial institutions will also charge a prepayment penalty if you repay your loan earlier. Therefore, inquire about any additional charges before you settle for a student loan consolidation.
Do I need a co-signer?
The need for a co-signer will depend on your credit history and financial standing. A cosigner can help you get better terms on your loan. A guarantor with a good credit standing can enhance your eligibility and make you get a lower interest rate. If you have a stable credit rating and finances, you can also release your student loan cosigner. This way, the co-signer will no longer be responsible for your new loan.
The main reason for consolidating your student loan is to save money by servicing a single loan. Be sure to ask the questions above before you choose a lending institution. You should also check your personal financial standing and future for you to make the best decision.