Student Loan Consolidation Lowdown

Is your financial aid expert trying to convince you that private student loans are the logical alternative to federal aid in affording higher education? There is probably one thing s/he’s forgotten to tell you — that these private alternatives can be more damaging to borrowers than beneficial if used as a substitution to federal aid rather than a supplement. Youngmoney.com reports:

Private student loan holders forego other vital benefits afforded federal loan holders. For instance, if a federal student loan holder becomes disabled or deceased, the loans are forgiven making repayment unnecessary. Private loan holders’ heirs would have to repay the loans in full from the deceased’s estate.

Read more: Private Student Loans: Pros and Cons<

The days leading up to July 1 saw a scramble by students trying to consolidate their loans, as interest rates would rise to 6.8 percent after this cut off date. Any student loans taken prior to that date will remain at a variable rate. Now that the consolidation drama has ended, many students are wondering if they did the right thing by consolidating their loans. Many more young students who will soon be entering the fray are also worried about their loan prospects.

So let’s get out the good news first: over the next several years, origination fees on student loans are scheduled to phase out. This means fewer fees on your student loans. Another benefit is that if you plan to pursue a graduate degree, a new PLUS Loan initiative will allow graduate and professional students to take advantage of PLUS funds. This means you will be able to cover your total cost of attendance with federally guaranteed, low-interest loans. This way, you can avoid alternative loans, which are usually more costly.

Agreed, there are benefits galore, but you can better your financial future by managing your student loans well. A few simple tricks are enough to ensure that you are on the right track to loan repayment and freedom. One of the first things you should realize is that student loan interest rates are variable - they change every July 1st. You can permanently lock in your interest rate by consolidating your loans.

Did you know that lenders offer a reduced interest rate when you make provisions to let your student loan payments get automatically deducted from your checking or savings account? This reduction in interest can lead to big savings and the added benefit here is that you will not have to remind yourself regularly about loan payments. If, for some reason, you have problems making your student loan payments, you should immediately contact your loan servicer to find out if you are eligible for deferment or forbearance.