When considering student loan consolidation, there are a number of variables to consider. The process has both its advantages and disadvantages, all which should be reviewed before jumping into consolidation. The following list contains five potential drawbacks of student loans that students should be familiar with to get some help with debt.
Fixed Interest Rate
When consolidating student loans, youre automatically given a fixed interest rate. This could be seen as either an advantage of disadvantage. Its an advantage in the sense that your rate never goes up, yet puts you at a disadvantage when variable rates drop. Fortunately, such drops wont have a huge financial impact on those paying back their loans, but should still be considered.
Discharge and Deferment Benefits
Certain loan programs provide discharge benefits which provide you with money after graduation. This money is used to pay off the loan. Deferment allows you to delay payments on a loan until the loan ends, and sometimes these benefits wont remain after consolidation. Therefore you may want to reconsider consolidation so that you can retain these benefits. A viable option would be to leave these loans out of the consolidation process.
Loss of the Grace Period
After graduating, you normally have a six-month grace period in which you dont have to make loan payments. The idea of this period is to give you an opportunity to find work and relocate if necessary. Consolidating your loans too early causes you to potentially lose this period. Thats not to say, however, that you should completely avoid consolidating during that time. If you consolidate during the grace period you have the potential to get a 0.5% interest discount on your new loan. This is a great way to save some money.
Be sure to make a payment schedule that isnt too long but still remains realistic. Stretching out payments causes your loan take longer to pay off, which in turn means paying even more interest. This is probably one of the most common ways that those in the student loan debt consolidation business capitalize on those who dont know any better. Be smart about your schedule and pay it off as quickly if you realistically can.
Without consolidation you pay off your loans one by one, meaning that when a loans gone its gone forever. When you see your loans consolidate, however, theyre all lumped together. Therefore youll continue paying until its all gone. This is a serious point to consider for those paying off their debt.
In the end, its your choice entirely. Weigh the advantages against the drawbacks and determine if loan consolidation is the right path for you.