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Before You Consolidate Private Student Loans Take a Look At These Facts!


Thinking About Consolidating?
One of the big buzzwords surrounding Private Student Loans is consolidation.

Most graduates quickly learn about this process once the payment grace period is over and they start the making payments on multiple student loans.

It doesn’t take long for the average person to realize how juggling numerous educational payments can turn disastrous pretty fast.

Why consolidate private student loans and why all the hubris?

The answer is rather simple.

This is the process of combining multiple loans into one single loan.

An example would be the graduate who has five different student loans from five different lenders.

Which means that person will be making five different payments every month.

Again, by consolidating they end up reducing five lenders down to one.

To consolidate private student loans or not, that is the question? First off, let’s get some facts straight. Or, as they say, let’s clear the air about some common misconceptions. If you were hoping to consolidate private student loans with federal student loans, that essentially is not a good idea for one major reason.

The incredibly low interest rates that come with federal consolidation loans are simply not available in the private student loan sector. Moreover, all of the other benefits that come with federal student loans would be altogether lost; benefits such as forbearance and deferment.

In the private student loan sector, borrowers are left with limited options if they face an economic hiccup are go through any financial hard times. Yes, the thought to consolidate private student loans sounds glamorous but the fact is this; private student loans are really reserved for those who can afford them and have a concrete back up plan in place if things go wrong financially.

Being there is no forbearance and deferment, the debt collectors who stand on guard for private student loan lenders, will make going through financial hard times a living nightmare. Considering private student loans come with absolutely no debt relief, you had better be sure before taking this route. In the final analysis, the main or sole objective to consolidate private student loans is to replace private students loans or a private student loan with a private student loan.

Just to be clear so that there is no possible chance of any ambiguity, I will repeat this yet again. Never consolidate any federal student loan into a private student loan! Even if you landed a dream job making six figures a year and see no possibility of any financial challenges.

As we have said numerous times private student loans should be a last resort type of financial aid. There is one other variable borrowers usually fail to factor in when contemplating the idea to consolidate private student loans. The new consolidated loan comes with a new set of terms, which means, yes - you end up with a lower monthly payment but at what cost?

Private lenders are notorious for making the initial package look absolutely appealing and then sticking it to borrowers on the backend where few people scrutinize. Here are some other variables you need to inspect closely and evaluate carefully and analytically. What are the fees? They have them to be sure; make sure you know what they are and the amounts. What are the prepayment penalties, if any.

Interestingly enough, most private lenders don’t want borrowers to pay loans off in advance. Why not? Because they only make money on loans; they make little to no money on people who pay off loans early. Hence, the reason they include prepayment penalties.

Finally, you want to be crystal clear on the actual interest rate you are being charged. Know this; the lingo and jargon used in the loan business can be confusing. To protect yourself, you need to learn these financial aid terms:

Origination fees, LIBOR, LIBOR +, ACH payments, variable rate loan, Prime +, creditworthy consigner, cosigner release, on-time principal and interest payments, credit criteria, graduated repayment options, level repayment options, no prepayment penalties, prepayment penalties, interest rates vary quarterly, primary borrower credit, Aggregate loan limit, floor rate and interest rate reduction for auto-debit.

All of these terms are common amongst private student loans. If you seek to consolidate private student loans, don’t wait until you sign documents to figure out what these terms mean and how they impact your wallet and economic future.

Brad Matheson is a professional Financial Consultant who specializes in helping businesses and individuals resolve their debt issues. He believes that all debt problems can be solved with the right debt advice and aspires to help Americans learn all of their debt options and exercise all of their rights. Says, Matheson, “Don't allow the Student Loan Debt crisis or a Defaulted Student Loan to hinder or block your career aspirations or stymie your financial dreams, There is Student Loan Help available!”