Most fresh graduates are in some amount of debt and have to seriously start thinking about repaying it. If you are having trouble staying on track with your payments, you should consider consolidating your student loan. If you consolidate your loan to a fixed interest rate, you will benefit tremendously. Even though your principal amount will remain the same, you can reduce your monthly payments by up to 40%. Consolidating your student loan is similar to refinancing your house.
You are advised to consolidate student loan right before your six-month grace period comes to an end. Consolidating it immediately after graduating would require you to start your repayments straight away. Also, once consolidated, your decision cannot be reversed, so be well advised before taking any decisions regarding the same.
Calculating your new interest rate
Having consolidated your loan, your lending company pays off your government loan and loans you money on their name. You are offered a new interest rate that is an eighth of the percentage higher than the average of all your student loan interest rates. The maximum rate that you would have to pay is 8.25%. The reason consolidating your loan is beneficial even though you have to pay a higher interest rate is because the rate remains constant for the entire life of the loan, unlike a government loan, wherein the interest rate keeps fluctuating. There are certain ways by which to get your lender to reduce their rates. Certain lenders are ready to reduce the rate by a quarter point if you go in for automatic deduction from your savings or checking account. Other financial institutions offer you lowered rates if you make your payments on time for the first few months. Another advantage is that there is no penalty for paying off your loan early.
Canceling your loan all together
You can actually get your student loan cancelled altogether if you are willing to do certain things that the government prescribes. One such option is by joining the Peace Corps. Another is working as a doctor or a teacher in a low-income area. Please bear in mind though, that you are not granted a cancellation on your loan once it has been consolidated.
Some loans have special benefits to offer you and so consolidating them would not be a good idea. For instance, the government pays off the interest on your loan while you are studying, if it is a Perkins loan. Once you have consolidated your loan, you will not be eligible for these benefits. Carefully consider the technicalities of your loan before consolidating it.
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