Managing Student Loans

A consolidation loans is a loan, generally taken out by college students upon graduation, which is used to pay off various student loans that you have accumulated during your years as a college student. The effect is that the graduate now has to pay back only one loan (the consolidated loan) instead of the numerous loans that the graduate took out during college. Make no mistake, the amount of the debt owed does not decrease. The only change that occurs is that you now have to make only one payment instead of several. Additionally, because after you consolidate you have to deal with only one company, your loan payments and interest rate are both lower.

Consolidation can be a great way for you to lower your monthly student loan payments and to lower the interest rate on the same, thus, saving you thousands of dollars in interest payments over the life of the loan. However, the problem with a consolidation loan is that qualification for such a loan is sometimes credit based.

During the course of your college education, there are two loans for which you can apply: (1) government loans; and (2) private loans. Government loans are provided by the government and have statutory limitations as to the highest rate of interest that can be charged against your student loans. Additionally, these interest rates are not high to begin with, and therefore, your government loans will almost always be less expensive than private loans.

Private loans, on the other hand, are given based on your credit score. Therefore, you may need a co-signer, and the interest rate charged will almost always be higher than the government loans. Additionally, there may also be a fee charged for acquiring the loan. These difference make private loans harder to get and more expensive. This is why colleges urge that you get a private loan only if the government loans do not give you enough money to support your living expenses.

Based on the above information, it would make the most sense to consolidate your private loans as soon as possible. However, just as private loans are credit based, a private loan consolidation loan is also credit based. Therefore, you need to build and maintain a strong credit score during your college years in order to qualify for the consolidation loan and thus, save money during loan repayment.