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Student Loans : Student Loan Consolidation Guide

Student Loan Debt Consolidation

Student Loan Consolidation Guide Step 4: Benefits of Student Loan Debt Consolidation

    Although student loan debt consolidation isn't right for everyone, it can help many recent graduates save money and budget their finances more effectively. Student loan debt consolidation is also a great alternative to defaulting on your monthly payments if you are worried you might not be able to pay the monthly bills. Before you make any decisions, you need to know about the benefits of student loan debt consolidation. Here's how you can benefit:

Lock in Lower Interest Rates: Most student loans have variable interest that change once a year, on July 1 ("Stafford Loans"). Although the interest rates for student loans cannot go above 8.25%, it is better to ensure you have rates that are much lower than that maximum. Student loan debt consolidation allows you to lock in the current interest rate, protecting you from any future fluctuations. For example, if you would have consolidated Direct student loans before July 1, 2006, you could have locked in rates as low as 4.75%. If the interest rates are low now and likely to go up in the future, student loan debt consolidation can save you a lot of money.

Incentive Interest Rate Reductions: In addition to locking in low interest rates, you can save more money by taking advantage of the incentives offered by student loan debt consolidation companies. One common type of reductions is given for signing up to make automatically withdrawn electronic payment each month. That will usually reduce your interest rate by about 0.25%. Another type of incentive is given for making 24 or 36 on time payments in a row. For that type of incentive, the reduction is usually around 1.0%. If you spend some time comparing offers, you can find the best incentives and save some money.

Only Have One Lender: Student loan debt consolidation takes all your loans and combines them into one larger loan. Just as you only have one loan after student loan debt consolidation, you also only have one lender. That means you only have to write one check and make one payment a month instead of multiple checks and multiple payments. It reduces the amount of work you have to do, simplifying the repayment process. Also, having one lender makes it less likely that you will forget a payment, which will help your credit score and your stress level.

Reduce Your Monthly Payments: If you are on a tight budget or the monthly student loan payments are more than you can afford, student loan debt consolidation can help. Student loan debt consolidation can reduce your monthly payments, giving you extra financial breathing room ("Loan Consolidation"). The reduced monthly payments will result in an increased number of payments, but at least the lowered rate can help you afford your payments.

    Although not for everyone, student loan debt consolidation can help you manage your student debt and save you money. Just make sure you understand the terms of any consolidation loan, and make sure you shop around to find the best deal. If student loan debt consolidation seems like it would be a useful tool in helping you manage your student debt, the next step is selecting a consolidation lender. For information about how to choose the best consolidation lender, read Step 5: How to Consolidate Student Loans with the Right Lender

Student Loan Consolidation Guide Sections:


US Departmane of Education. "Loan Consolidation." (accessed August 7, 2006).

US Department of Education. "Stafford Loans (FFELs and Direct Loans)." (accessed August 7, 2006).