How Does Student Loan Debt Consolidation Work?

Student loans are relatively easier to get; they are easy on your conscience too. After all, college education is a must if you want to get ahead in life. Unfortunately, rising college education costs have led students to borrow large amounts. This often leads to multiple debts which are then difficult to repay.

This is where student loan consolidation can be of help. It helps to make loan repayment easier to afford. Student loan consolidation is allowed after graduation; so most students hunt for loan consolidation during the six-month grace period post graduation. Current interest rates are a big factor in deciding whether you wish to go for consolidation. The main advantage here is that monthly repayment amount is low and you have to make only one payment each month. Banks, secondary markets, and credit unions are authorized by the Federal Family Education Loan Program to offer student loan consolidation. You can consolidate your loans even if your college is not a member of the Direct Loan Program. Loans that are eligible for consolidation include subsidized and unsubsidized Direct and FFEL Stafford Loans, SLS, Federal Perkins Loans, Federal Nursing Loans, and Health Education Assistance Loans.

It is important to check with the Direct Loan Origination Centers Consolidation Department regarding the eligibility criteria and your obligations during the period of consolidation. Eligibility criteria depend upon your previous record in paying off your loan installments; as always your credit score is a big indicator. Also a minimum balance - most often $5000 - is required by lenders before they can consider your consolidation application.

The interest rate on your consolidated loan is the weighted average of the interest rates on all your loans and it does not go above 8.25%. There is a slight increase in the interest rate when you choose to consolidate; apart from this there is no cost to a student loan consolidation. Be aware of this and do not let a lender charge you frivolously. Report a lender that attempts to charge an upfront fee.

An alternative to loan consolidation is loan serialization in which a lender purchases your loans and you repay them one at a time; here the loans stay separate. The loans are not clubbed together. You could also consider loan-forgiveness programs where your loans are forgiven in exchange of work that you do in designated places for a specific period of time.

Student loan consolidation is a good avenue to lessen your loan burden - not only students but also parents can consolidate their loans.

Recommended Loan and Refinance Service: EStreetLoans.com