How to Consolidate Student Loan Debt

It is currently safe to say that the majority of students attending college receive some form of financial aid. The cost of higher education is skyrocketing and salary increases have not kept pace, resulting in an unaffordable learning experience for many college students. Once loans are taken to finance this education, they seem to become due before one blinks. Knowing how to consolidate student loan debt will prevent these items from negatively impacting the credit report.

Consolidating these loans can lead to a reduction in interest rates and more manageable monthly payments. This action is not appropriate in all situations, so the individual should conduct research and investigate whether the alternative outcome will be more positive than the present situation. The goal is to simplify the issue, rather than make it more complicated and stressful.

The consolidation process involves one lender grouping multiple loans together. This entity will purchase the other loans and will become the new primary lender. The new consolidated loan will compile all previous loans into one that has a new fixed rate of interest. Having one payment, a fixed interest rate, one entity to pay, and possibly lowering the interest rate are benefits of engaging in this practice.

One factor to consider before making this decision is whether a fixed interest rate is desirable, in light of the state of the economy. If rates are projected to fall, it may not be worthwhile to move from a variable to a fixed rate of interest. It is also important to consider whether the loans can be consolidated, because not all of them can be. Most federal loans can be and if a private student loan can, there are private consolidation alternatives.

The individual may pay more when these items are consolidated because the life of the loan is being extended. The interest paid is tax-deductible, offering some financial relief to the consolidator. Not all loans need to be consolidated and since the new interest rate is an average of the current rates, an individual may want to leave the highest rate loan out of the consolidation process.

Individuals should carefully consider these factors before making the decision to consolidate student loan debt. If the desire is to proceed, they can consolidate qualifying federal and private loans with a lender, resulting in one monthly payment and possibly a lower interest rate. Though this practice will extend the life of the loan, the interest is deductible for federal income tax purposes.