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Top Five Tips for Student Loan Debt Consolidation

[Apr 3, 2009.]


Experts note that interest rates for government debt consolidation loans are approaching historic lows, with even lower interest rates expected into the summer of 2009. For eligible student loan borrowers, now could be a great time to reduce monthly payments while still saving money on interest. Financial advisors remind college graduates to consider student loan debt consolidation carefully, especially since many government loans can only be consolidated once. Experts offer these tips to help graduates choose the right consolidation loan:

Aim to reduce the number of checks you send. Government debt consolidation loans make it easier to keep track of payments made on your federal student loans. However, you cannot consolidate federal and private loans. For instance, if you took out an additional personal loan to cover books and food, you will not be able to bundle those debts with the loan you took out to cover tuition. After successful student loan debt consolidation, you will likely make one payment to the U.S. Department of Education and other to a private lender.

Leverage your banking relationships. Many banks now offer preferential deals to borrowers who prefer to keep their loans and bank accounts under one roof. Financial advisors caution borrowers with sketchy repayment histories to avoid this practice, however. Some lenders can still deduct your student loan payment directly from your checking account if you miss a payment. This practice can lead to bounced checks and overdraft fees, if you’re not careful.

Stretch your payments over time. In many cases, student loan debt consolidation allows you to adjust the term of your loan. This can be helpful if you have recently changed jobs or if your current career path requires a few more years before you make a higher salary. If you can combine a low interest loan with a high interest savings account or a certificate of deposit, you may be able to use excess interest savings to pay off your student loan sooner.

Avoid prepayment penalties. Some private student loan debt consolidation companies may try to tempt you with very low interest rates. However, looking closely at the fine print can reveal whether they have locked in their profits by forcing you to pay a prepayment penalty. If you believe you’ll someday earn enough money to pay off your student loan in a lump sum, ensure that you won’t still have to pay the remaining interest on your private loans.

Steer clear of scams. Some so-called student loan debt consolidation experts want to charge you hefty fees to uncover the same opportunities you can find online. Spend time at the library or use Facebook to catch up with some of your former college classmates to learn how other people are building consolidation strategies.

Remember, you can only consolidate your federal student loans once under government debt consolidation loan programs. After that, you can reconsolidate through a private lender, although you risk losing the benefits of participating in federal loan programs.


About Author:

Joe Taylor Jr. is an internal business consultant for a Fortune 500 company, who writes about finance, culture, and design. He holds a Bachelor of Science in Communications from Ithaca College.

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