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Student Loan Consolidation Programs - The Pros and Cons
Consolidation has pros, cons for student loan repayment. Recent U.S. college graduates, and those approaching graduation, are looking apprehensively at how to repay their student loans. One of the options that have been available is a student loan consolidation program, but the current global economic downturn is having an effect on this alternative - as if starting and finishing college wasn't already hard enough!
Student loan consolidation means that if you took out more than one U.S. government loan while in college, you can combine them all into one. You can also combine all your private loans not part of your financial aid into a consolidation, but lenders don’t recommend you combine your government loans with your private loans. That’s because by law, if you combine the two, the consolidation then becomes a private loan and you loses the benefits of your government loans, such as deferment if you go on to graduate school.
Here’s what Naomi Rockler-Gladen, writing for the College Financial Aid section of Suite101.com, writes about the advantages and disadvantages of government student loan consolidation.
• You’ll have a lower monthly payment, resulting both from a lower federal interest rate and a longer time to pay back.
• You can choose from four different payment plans, included a plan that can extend up to 30 years, depending on how much you owe.
• You’ll have only one monthly loan payment instead of several.
• There’s no fee, no credit check and no penalty for early payment.
• The application process is simpler than with other loans.
• You’ll pay more interest in the long run with an extended payment plan. This could cost thousands of dollars if you have a big loan and restrict your financial future.
• The consolidated loan interest rate could be higher than your other loans. If that’s the case, don’t consolidate.
• You lose the remainder of your grace period if you consolidate during the six-month grace period after graduation.
• Consolidation may not be worth your money or your effort if you’ve already paid off a big portion of your student loans.
The final hitch in this process during early 2009 is the worldwide credit crunch.
MSNBC reported on March 9, 2009 that graduates who have defaulted on their student loans and are now making payments again are finding that no banks will give them loans. The last bank accepting default student loan refinancing quit doing so last November. There are many lenders still advertising student loan consolidation, but there’s no guaranteed that your loan application will be accepted because credit is so tight.
This leaves the newly enacted government student loan consolidation program being run by the U.S. Department of Education as your only option. However, this program by law can only consolidate loans made in 2003 and thereafter, so if your loans are older, you’re completely out of luck during Spring 2009. Your only alternative may be to keep paying what you can on your loans, endure the blot on your credit record, and wait for better economic times. Frustrating, isn’t it?