Private Student Loan Consolidation: Some Factors to Consider

June 21, 2012 by  Filed under: Debt 

The sheer weight of debt on the shoulders to college-goers and recent college graduates can be crippling, so there can be little confusion as to why private student loan consolidation has become such a popular option.

With the cost of annual college fees reaching as much as $50,000 even below the Ivy League institutions, graduates can face debts of as much as $200,000 once they have left school. But by refinancing existing debts, the overall financial pressure can be alleviated considerably.

However, as with everything to do with finance and debt management, there are some factors that should be taken into account before any consolidation agreement is signed up to. The ability to handle, and eventually clear the debt created by private student loans, however, is certainly improved.

Advantages of Consolidating Debt

Quite simply, the purpose of seeking a private student loan consolidation program is to make the job of repaying college debts easier for the borrower. But to do this, there are a number of elements that such programs need to include. Only with these can the advantages of consolidating college debt actually be enjoyed.

Reducing the size of the debt is not as mysterious as it might seem. This is because refinancing existing debts effectively means buying them out with one loan sum, and then applying one interest rate. And it is the different interest rates applied to different individual loans that is responsible for the higher debt load.

This in turn reduces the size of the required monthly repayments, and so lifts the pressure that graduates are under considerably. In fact, private student loans can mean total repayments of $1,500 per month, consolidating the debt can reduce the monthly payments by half.

Specifics of a Consolidation Loan

There can be little doubt that a private student loan consolidation program can drastically improve the debt situation for recent graduates. However, there are some specific details that need to be taken into account. Not least the loan limit that consolidation programs have.

The limit differs between undergraduate and graduate students, with the former loans limited to between $7,500 and $100,000. The latter, meanwhile, ranges between $7,500 and $150,000. What this means is that it may not be possible to consolidate every penny owed, but certainly in refinancing existing debts (even 75% or 85% of them) makes a huge difference.

The repayment options can also vary, depending on the lender. However, the funds borrowed to buy out these private student loans can be repaid on an interest-only basis for a period of 4 years. This means that graduates (and undergraduates) can be given time to develop a career, so that a sufficient income can be secured.

Some Additional Factors

There are some additional steps that can be taken to maximize the advantages enjoyed through private student loan consolidation. Not least amongst them is the addition of a cosigner, someone who is willing to guarantee that repayments will be made each month.

The effect is that the lender is willing to greatly reduce the interest rate charged with the consolidation loan. So, even though refinancing existing debts means a reduction in interest rates, by including a reliable cosigner the size of the overall debt is reduced even further.

What is more, with some agreements, if repayments are made without any problems for an agreed period (usually 12 consecutive repayments) then the cosigner can be released of their obligations without affecting the interest rate.

So, the debt created by private student loans can be managed, reduced and cleared to the benefit of both lender and borrower.

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Article Source:
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