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Consolidate Private Student Loans – What You Should Know

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While some students are fortunate enough to have parents pay for their educations or receive full-tuition scholarships, student loans are a reality for most college students today. Between the rising cost of tuition, room, board, endless fees, books and transportation expenses, most students must take out some student loans in order to afford a college education. While it is easy to sign on the line and receive thousands of dollars, it is much harder to leave school and be able to immediately pay off these loans.

Most student loan payment become due six months after the student has graduated or sooner if the student drops out of school early. Many graduate students do not have a professional salary at this point in time and even if they do, may still struggle to make student loan payments. Consolidating students loans can help borrowers receive reduced payments and more flexibility with loan payments.

Some student loans are backed by the federal government, including Stafford Loans, Perkins Loans and PLUS Loans. These loans can be consolidated into Direct Loans that provide the greatest amount of flexibility. Consolidating federal loans allow borrowers to receive a reduced interest rate and the convenience of one monthly payment. Among the various types of repayment terms for federal loans are income contingent repayment plans and an income-based repayment plan. Extended plans allow the borrower to pay smaller payments over an extended period of the loan. Borrowers can change to different repayment plans as their needs change.

Private consolidation loans are also available. To consolidate private student loans is a great way to simplify your finances and lower your monthly payments for more friendly payment terms. These types of loans are based on the borrower’s credit score and current financial position. Getting all of a borrower’s loans rolled into one larger loan can provide multiple benefits to borrowers. This strategy decreases the number of bills that arrive each month and the likelihood of missing payments or making late payments. Consolidating the loan often entails a resetting of the loan’s term which can decrease the amount of the monthly payment. Borrowers can also save a substantial amount of money by receiving a reduction of an interest rate by one or more percentage points.

When a borrower is looking for consolidation options, it is important for him to thoroughly research the options that are available to him. Various options will be available based on the types of loans that the borrower has. When applying for a private consolidation, it is important for the borrower to improve his credit score as much as possible prior to applying for the loan. If the borrower can increase his credit score by 50 or more points, he will likely be able to receive a consolidation loan with preferable terms. Borrowers can also apply for a home equity loan in order to consolidate their loans. Home equity loans tend to have lower interest rates and fixed interest rates. Many private student loans have a variable rate. Even if the two interest rates are comparable, it is in the borrower’s best interest to apply for a fixed rate interest rate so that the borrower can lock in the lower rate for a longer period of time. Another option for borrowers is to contact the financial institution that currently holds their loans and request that the lender provide them with a consolidation loan with a lower interest rate before they reach out to a new lender.

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