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Pros and Cons of School Loan Consolidation
School loan consolidation is one of the most popular methods people use to repay their outstanding education loans. School loan consolidation enables you to take all of your different loans and roll them into a single large loan with an extended payment plan.
Typically, you can choose a regular repayment option that gives you up to ten years to repay the debt or even longer term plans. Consolidation seems to make it relatively easy to repay your school loans but, as with everything else, it has its pros and cons. You need to consider the benefits of consolidation along with the problems it can create for you before you actually begin consolidating your loans.
Understanding School Loan Consolidation
School loan consolidation, whether they are federal or private loans, means you take out a loan that pays off all of your loans of that type. You are then issued a loan for the total amount of your loans for which you are given an extended period for repayment.
Nearly every federal loan is eligible for consolidation as are most private loans. The basic repayment plan for consolidation is a ten year span for repayment. You can typically choose from a variety of repayment methods, including an extended plan that can last up to 30 years depending on your loan amount. Filing for consolidation is free for federal loans but may come at some cost for private loan consolidation. Generally, there is no fee for early repayment of federal consolidation loans; with private loans, it is a good idea to review the terms to determine all fees and penalties.
Pros
- When you have a large amount of debt student loan consolidation can be a great way to reduce your monthly output for repayments by bringing you down to one small installment.
- You make a single payment each month which reduces the headache of keeping up with multiple payments, fees and schedules.
- You typically get a great interest rate that is locked in for the duration of the loan even if your previous loan(s) had adjustable interest rates.
- You have a longer repayment term which reduces the amount of your installments.
- With federal loans, you retain the benefits of deferment, forbearance and forgiveness.
Cons
- You pay a greater amount overall with a consolidation loan. The smaller payments mean that you pay interest for a longer period of time, thus creating a greater output.
- When you consolidate you pay off all of your loans with their interest and take out a loan that may have a higher rate than the smaller ones.
- If interest rates eventually decrease, you will not benefit from the market changes and repay a lesser amount.
- Not all loans are eligible for loan forgiveness programs when they are consolidated.
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