Best Consolidation Loan Student

After graduation, one of many questions is how to repay student debt. Should you consolidate your loans, or pay them off individually according to the existing agreements? The most favorable resolution depends on many factors, but the most important consideration is how much income you’ll have available for debt repayment.

For federal student loan consolidation, best repayment options are offered by the US Department of Education’s Federal Direct Consolidation Loans Program at loanconsolidation.ed.gov. Here you can consolidate most federal student loans, direct student loans, and guaranteed student loans into one loan. Federal loan consolidation does not require credit checks, cosigners, or fees. You do not need a job to consolidate loans and you don’t have to provide collateral.

With a large amount of debt from many different loans, you may benefit from consolidation. For one thing, it gives you a single monthly payment instead of many. You can also extend the repayment period from the usual ten years to anywhere from 12-30 years, depending on your total debt. There are no overpayment penalties; you can make larger payments as often as you wish. All overpayments are applied in full toward the loan principal, making them interest free.

Consolidating with the Department of Education will get you a fixed rate with only a slight increase in interest. You’ll be charged a weighted average of all the interest rates on each loan you owe with a maximum rate of 8.25%. Consolidating individual student loans, each with an interest rate of 6.8%, results in a consolidated interest rate of 6.875%. You can also convert variable rate student loans into the fixed rate loan. If you consolidate during your grace period, you’ll also get an interest rate reduction of 0.6%.

Another thing that makes federal student loan consolidation best is that your monthly payments can be reduced by as much as 50%, and there are a number of repayment plans from which to choose. You can repay the consolidated loan with fixed monthly payments over a predetermined length of time. You can opt for payments that start small and gradually increase. You can choose income-sensitive payments where your monthly payment varies according to annual income. You can even switch plans during the repayment process.

Should you decide to go back to school, debt consolidation payments can be deferred for as long as you remain a full-time student. Any new loans you take out can be added to already consolidated loans by way of a new consolidation loan that combines new loans and old.

Federal student debt consolidation is not the best solution for smaller amounts of debt that can be repaid within ten years and already come with fixed interest rates. Lower monthly payments are not worth the expense of paying more interest over a longer period of time. If you’ve just graduated and have not yet found work, the original loans can usually be deferred until you are employed. Another disadvantage of the federal debt consolidation program is that private educational loans cannot be included in the consolidation.