Student Debt Consolidation Loans

Most students graduate with a large debt on their shoulders. Student debt consolidation loans are a way to combine the multiple loans most students have into one payment, hopefully with a lower interest rate.

There are two kinds of student debts to look at: federal student loans and private student loans. Federal student loans benefit from consolidation mainly for the simplicity of one monthly payment to handle, and the many repayment options the federal consolidation loan will give you. The consolidation loan will be financed by the Department of Education and will be called a Direct Loan.

Starting in July, 2009, students with Direct Loans will have their monthly payment amounts based on a percentage of their income. As the borrowers income changes over the years so does their monthly payment amount. If after 25 years the debt has not been paid in full the debt is forgotten. For those who graduated earlier than the July, 2009 date that this option began, if you haven't consolidated in the past you may still qualify for this option but it's important to note that the 25 years begins at the time of consolidation of the debt. This is one of a number of options federal student loans have for repayment. Federal student consolidation loans have one limitation: they cannot be consolidated with other debts, including private student loans.

Private student loans have a variety of interest rates and there is a good chance borrowers can save money with a consolidation loan and get a lower interest rate. When originally taking out the loan most borrowers had a limited credit history. Hopefully during the course of college the student developed a better credit rating with an employment history and timely credit card and bill payments. Because of this higher credit rating the student should qualify for a lower interest consolidation loan for their debts.

Make sure to ask consolidators about origination fees, prepayment penalties, the maximum interest rate, and the time line of the loan. Be careful that you understand the loan terms completely.

No matter what kind of loans, graduating students with debt should consider consolidation loans as an option, but consider it carefully as student debt consolidation loans will be with you for many years to come.