Some people wonder if debt consolidation is the best step to take for your graduate student loans. Some are looking for the best ways to consolidate graduate student debts. If you fall under these categories of people, you are reading the right article.
What is Debt Consolidation?
Debt consolidation is one of the best solutions for people who are overwhelmed with debts. It is more like combining debts. Here, you take out new debts or credit cards to cover for Previous debts or credit cards.
People do this just to obtain favorable loan terms such as lower monthly payments and interest rates.
Debt consolidation as we know has its advantages and its disadvantages. But first, let’s get a clearer picture of how it works.
How Debt Consolidation Works
There are different ways to consolidate debts including using a new credit card with a higher credit limit, taking a home equity loan, or using a new personal loan.
With a credit card, you can simply pay off your smaller debts or just transfer your old debts to your new card.
Some credit cards that allow this offer some incentives such as a 0% interest rate on your balance for a given period.
With fewer bills to pay, your financial life can be simplified. This is what debt consolidation offers.
Graduate Student Loans Debt Consolidation
Graduate students normally have lots of loans to deal with just after graduation, especially if they had some outstanding student debts during their undergraduate days. These loans could keep piling up as their education continues.
As soon as you graduate, you will be looking for the best possible ways to pay off your debts before the standard grace period goes off. This means that you will need a good job.
Remember that most of these graduate students would have had some outstanding undergraduate debts before the additional debts came along. After graduation, they may need some more time to pay off their debts and make smaller monthly payments. This is where debt consolidation comes into play.
However, before going down that path of debt consolidation, here are some factors you should consider.
Factors to Consider Before Taking Debt Consolidation
Of course, debt consolidation seems to be the best option at this stage. However, you must ask yourself these questions before you consolidate your debts.
- Are your monthly payments really difficult to manage?
- How many loans do you have?
- Do you have some other monthly financial responsibilities?
- How far have you gone in your repayment?
- How many lenders do you have?
- Do you have any loans in default?
- What is my goal? To reduce repayments or pay the loan faster. If the latter is your answer, debt consolidation may not be the best option for you.
You must be sure that this is the best option to take. Consider all other options too. Would you rather pay what you have now and pay off the remainder later? Or would you budget and save?
How to Consolidate Graduate Student Debts
Before choosing the best option for you, it’s best to consult one of the lenders for guidance on a good consolidation plan.
You can consolidate graduate student debts by using one of the following options below.
Federal Loan Consolidation Program
Under the Federal Loan Consolidation Program, federal loans from both undergraduate and graduate schools may be combined. The fixed interest rates are set at 8.25 percent and based on a “weighted average” of loan interest rates.
This steadiness could be very helpful if your existing debts are fluctuating. Lower interest rates can also be available for loans made during the six-month grace period. If you have a Stafford Loan that you want to include in the consolidation process, either subsidized or unsubsidized, you can do so through the Federal Government’s Direct Consolidation Loans Program.
Most lenders, however, will not accept defaulted loans into their FFEL consolidation programs.
Your FFEL lender is well-positioned to offer you the best deals and advice on consolidating your federal graduate loans. Credit checks are also not required for FFEL consolidation loans. Also, because timing is important, make sure your lender gives you a grace period to add another loan. This could be very useful in the long run as you get closer to completely pay off your debt.
Private Debt Consolidation
Private student loans for graduate students have grown in popularity in the past five years, both on their own and as a way to fill in the cost gaps left by federal loans, grants, and scholarships. If you’re like many other students, you may have taken out a private loan to cover the remaining balance of your graduate school tuition after your federal loans were exhausted.
Alternatively, you may have borrowed from a popular crop of lenders offering specialty-specific graduate loans aimed at more expensive college programs such as law school, medical school, and business school.
Unlike federal graduate loan consolidation, private graduate loan consolidation generally requires you to have good credit or apply with a creditworthy co-borrower. In comparison to the federal consolidation program, lenders have a lot of freedom with their private loan products.
Some lenders require a minimum loan balance, such as Sallie Mae, and those are willing to bundle auxiliary educational loans, such as those used for textbooks as well as computers, into the private loan consolidation.
Check with your lender to see what incentives and packages they may have for those who want to consolidate their debts. You have the freedom to shop around in this regard, as the terms are much more variable than those of federal loans.
Benefits of Graduate Student Debt Consolidation
Consolidating your graduate student loans is an excellent way to manage your student debt. Making multiple loan payments each month can be challenging, both financially and personally. Multiple loans will cost you more over time, and the more bills you have to keep track of, the more likely you will miss a payment. A consolidation loan may be the solution to your student debt problems.
When you obtain a consolidation loan, you contract with a new lender who agrees to repay all of your outstanding student debt. The lender will then create a new loan for you that will cover all of your previous debt, leaving you with only one loan to manage.
Payments are easier to make, and you can often secure your consolidation loan at a lower interest rate, saving you money over the life of the loan.
Consolidating your graduate student loans can also help you improve your credit score. Your previous student loans will be retired as paid in full, and you will benefit from having a good credit history, which will make future financial transactions much easier.
Finally, having lots of debts to pay at the same time can take a toll on your peace of mind. However, as you seek to get this peace, be sure to consider all options and only go for the best.