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Education Student Loan Consolidation

By: EconomyWatch Content Date: 25 November 2009

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Managing multiple student loans can be extremely cumbersome. An education student loan consolidation is a program designed to simplify finances by combining all existing loans into a single loan program. By merging multiple loans and establishing a single open line of credit, a student loan consolidation program also helps to improve the credit rating.

Education Student Loan Consolidation: Types of Programs

While deciding to consolidate multiple education loans, students may choose from the following alternatives, depending on their present and expected financial standing:

· Standard student loan consolidation: This program is best suited for students who are employed, with the ability to make fixed monthly payments. Since the interest rate under this program is fixed, the borrower need not worry about interest rate fluctuations due to market volatility. The repayment period under this loan program can be extended up to 10 years.

· Extended repayment plan: The interest rate terms under this program are similar to the standard loan consolidation program. However, under this program the repayment period can be extended up to 30 years, and thus enables one to benefit from lower monthly payments.

· Graduated student consolidation loan: This enables one to pay-off the debt obligation faster, and thus reduce the amount spent on interests. Under this plan, the monthly payments increase gradually with an anticipated raise in income. Depending on the payment capacity, the duration of a consolidated loan under this program is typically between 15 and 30 years.

· Contingent plan: Under this program a consolidated repayment amount is established after reviewing the financial standing of the student as well as his/her family. This consolidation program is usually a last resort, offered when a student fails to qualify for other education student loan consolidation programs.

Education Student Loan Consolidation: Pros and Cons

The benefit of a student loan consolidation is multifold. Besides facilitating easier debt management and lower interest and monthly payments, student loan consolidation programs enable:

· Consolidation of federal and private student loans separately, for optimizing their individual benefits. In addition, it is completely up to the borrower whether to consolidate all or just a few loans.

· Consolidation of student loan(s) with that of a spouse, enabling one to benefit from even lower monthly payments.

Also, unlike other loan products, a student loan consolidation does not involve a credit check, bank fees and payment penalties.

The downside of education loan consolidation is that by applying for one a borrower has to forgo exclusive benefits of individual loans. Moreover, after applying for consolidation, one has to relinquish “grace periods” on loans, if any.