Student loan consolidation
is a viable method to reduce student debt. In case a student has a lot of debt
then he should follow a step wise process to eliminate it.

In student debt consolidation,
several loans that a student takes out for his college expenses, personal expenses
etc are combined together on one large loan. Now you have to keep up with only
one payment instead of many.

It's just like House Refinancing

Student loans consolidation is
a similar process to refinancing. Though the principal of the loan is same but
it provides you better terms of interest. You can lock in interest rate while
consolidating student loans making them fixed which reduce your payments considerably.
Secondly an increase in time for repayment is also allowed which reduces the
monthly income even lower. There are companies that can further reduce the interest
rate on the repayments. There is no penalty for paying your loan before time.
The early you can eliminate student debt the easier it will be to manage your
practical life expenses.

Disadvantage of Student loan Consolidation

When you are consolidating student loans you are given a grace period. Many companies require you to start making the repayments right after the grace period is over. This causes a lot of problem for most of the students after gradation don't land a good job to earn income. It is better to avoid any company that requires payment immediately after the grace period.


A second disadvantage is that once you start consolidating the student loan you will not be able to freeze the process until it is over.

How is Interest Calculated When I Consolidate Student Loans?

The company that you start business with for student loan consolidation pays off all of your government student loan. After this you will not pay the government but to the loan consolidation company. The interest rate on the new loan that you have taken is calculated by taking the average interest rate on all the previous loans that you have consolidated into this single loan and give a new rate that is an eighth of a percentage point higher. The maximum interest rate can be 8.25%. It is a high interest rate but it will stay fixed during your repayment time period whereas the interest on government loan fluctuates.

Further Rate Reduction

There are many companies that will provide you even lower interest rates. If you pay on time for several months they might reduce the interest rate as a bonus. If you allow the bank to cut the payments from your savings account, you can come to terms with banks to bring the rate down by a quarter point.

When Would You *Not* Want to Consolidate Student Loans?

There are times when consolidating student loans will be an overhead for you. For example, if you volunteer in Peace Corps, if you work in low income government jobs like teaching, medicine you can get your student loan cancelled. If you are interested in these fields then you should not consolidate and instead get them cancelled. Once you enter consolidation then cancellation will not be possible.



There are certain loans that if kept open are advantageous for you. These include Perkins loan which are available to someone who wants to go back to school. The interest on this loan throughout your stay at the school is paid by the government. If you have consolidated you student loan you will not get this benefit.

Bankrupting student loans

If your career didn't go well and you piled up loads of debt on your credit
cards and you haven't paid your student loans yet then you can bankrupt
your student loans too. Extreme caution must be adopted before taking such
a step. However, if you are thinking of bankrupting student loans then read
the complete article to find out more.