Students graduating from a four-year university are leaving college with more student loan debt than ever before. After four years at a private university, law school, and graduate school my husband and I have a combined student loan debt of $250,000. Fortunately, we both have good paying jobs, but we made our student loan debt more manageable by consolidating our numerous loans into 3 payments.
Consolidating your education loans can simplify the repayment process by reducing the number of lenders you have to pay each month, but the key to saving money with loan consolidation is finding a low interest rate. I restructured my student loan payments by consolidating my loans when I took an extended leave from graduate school. I was able to exchange my 6.25% variable rate for a 4.5% fixed rate. My husband was able to secure a 3.75% fixed interest rate when he consolidated his loans. Although I eventually took out additional loans to finance my education spending, I didn’t consolidate my new loans with my previous loans because it would have raised my interest rate increasing the cost of repaying my loans in the long term.
In today’s tight credit market, it can be more difficult to find a lender willing to consolidate your loans. Most students graduating with an undergraduate degree have loans guaranteed by the federal government. These loans can be consolidation through the Department of Education.
With the rising cost of tuition, some undergraduate students are turning to private loans. Graduate students pursuing degrees in the health and legal professions may also have private loans. Private loan consolidation programs are available through most banks.
When choosing a lender for loan consolidation, be sure to ask about the terms of new loan. Does the consolidation loan offer flexible repayment options that can change as your financial situation changes? Will you be able to defer loan payments if you decide to go back to school? Is there an option for forbearance if you are unable to make payments due to unemployment or other financial hardships?
When paying back your student loans, be sure to talk with your lender if you have trouble making your payments. Defaulting on your student loans will make you ineligible for future loans should you decided to pursue a graduate degree, and most student loan debt cannot be discharged by declaring bankruptcy.