Student Loan Debt Consolidation: How Does it Work?

You’ve probably encountered the term student loan debt consolidation before, but you didn’t know what it meant.  Well then, it’s high time you should start learning something about it because you could be considering it in the near future.

Right after you graduate, you will have to think about how you are going to repay all your education loans.  Sure, you have your grace period (6 month after you graduate and before you start making payments) to come up with the money and think about it.  But why don’t you start thinking about it now?  Here’s an option: student loan debt consolidation.

What is debt consolidation?

Generally, debt consolidation means taking out one loan to repay several other loans.  This is done so that you can secure a lower interest rate, a fixed interest rate, and the convenience of having to pay for only one loan and to one lender.   

Student loan debt consolidation

You can opt for two types of student loan consolidation.

· Federal student loan consolidation

This is a refinancing program that bundles all your existing federal student loans into a single loan at a fixed interest rate.  This is really a great tool that will help you in managing your finances.  Also, it can provide benefits like payment relief and more.

Also, when you apply for a student loan debt consolidation, you can extend your repayment period for up to 30 years, so you are given more time to pay off your student loans.  Through this, your monthly payments will surely decrease and you will have more money to pay off other expenses like car expense, housing expense, and other career-related necessities.

This is for those that have taken federal loans like Federal Stafford Loan consolidation, Direct Loan consolidation, PLUS Loan consolidation, as well as HEAL Loans, Perkins Loans, and other Federal FFELP and Direct Loans for college education purposes. 

· Private student loan consolidation

If you still have private student loans to repay (because this is usually not included in federal student loan consolidation), then you can still consolidate it through private student loan consolidation.   This will allow you bundle up all your eligible student loans into a single consolidated loan at a lower interest and longer time to pay. 

But then, if you do this, you could lose the benefits that come along with a federal student loan consolidation such as deferment eligibility and loan forgiveness options.

Overall, this is just a simplified version of student loan debt consolidation.  If you want to go into it, it is better if you know more about it before going into a decision.