For most students that graduate from a two or four year degree program and then enter into the workforce, paying back student loans within the 10 year allowable time can be a real challenge.
Most students during this first 10 years after graduation will get married, have at least one child, change jobs at least once and will purchase at least one vehicle and most likely a house.
With outstanding private school and federal loans, managing all of these expenses may be difficult.
One major option is to consolidate student loans, which means borrowing to combine your student loans, pay them off, then pay off the remaining single consolidated loan over a longer repayment period. The option to consolidate student loans is open to most employed graduates or even, in some cases, to students that are still in school but are in some way working to earn an income.
It is very important to compare how the consolidation and your original loans differ based on various interest rates, and it is equally important to consider all of your options.
A financial planner, consultant or even your regular banker can help you understand the advantages and disadvantages to consolidate student loans. Generally the biggest advantage to consolidate student loans is that it takes the multiple payments from different lenders you may have a literally pays off these loans, leaving you with one payment to make to the consolidated loan lender. In most cases, actually in virtually all cases, this one monthly payment will be less than the original multiple payments.
The logical reasoning behind this is that your “pay back” term is expanded, therefore you pay less per month over a longer period of time. The negative to working to consolidate student loans is also related to the repayment stretch. You will have to keep making payments for much longer, which may be up to 30 years, before you will be debt free with regards to the student loans. This means that over the life of the consolidated loan you will pay significantly more in interest, which may be a huge dollar amount if you actually make only the required payments.
You can also lower the interest amount by paying more than the minimum monthly payment. However, it is important to distinctly specify that the extra payment is strictly for the loan principal. If you begin this when the loan starts of soon after, you can rapidly cut payments off of your loan.
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