Student loan consolidation explained with Play-Doh
What is student loan consolidation and how does it work?
How student loan consolidation is like Play-Doh
According to the video, student loans are like separate pieces of Play-Doh. You may have different types of federal student loans, such as Stafford subsidized and unsubsidized loans, as well as Perkins loans or possible even private student loans.
When you consolidate your student loans, all of your loans are lumped into one larger loan, like taking all of those separate pieces of Play-Doh and smashing them into one larger piece. For many borrowers, this is much more convenient because they can pay one monthly bill to one lender and be done with it.
Benefits of student loan repayment
In addition to the convenience factor, as the video explains, student loan consolidation can also help you spread out your loan repayment period–like a long piece of Play-Doh.
The Standard Repayment Plan for federal student loans puts you on a 10-month repayment period, but student loan consolidation can help you extend this to 15 years or more. A longer repayment period can provide relief to borrowers who can’t afford their monthly payments, as it allows them to pay a lower amount each month over a longer period of time.
When you consolidate your loans, be they federal or private, your lender may offer you borrower benefits, such as an interest rate reduction. For example, if you elect to consolidate your federal loans, you may be eligible for a 0.25% interest rate reduction if you agree to have monthly loan payments automatically deducted from a checking or savings account. You may see this referred to as an ACH (Automated Clearing House) transaction.
In addition, many lenders also offer additional discounts for making all of your monthly payments on time. For consolidation and PLUS loans, some lenders offer a 1% interest rate reduction after 36 months of on-time monthly payments for as long as you continue making on-time payments. Some lenders will also cancel the last few loan payments so you don’t have to pay them. Benefits are dependent on the lender and type of consolidation you choose.
Student loan consolidation is not for everyone
Remember, though, that consolidating your student loans isn’t always the best option for everyone. You could lose the current benefits you may have through your lender, such as additional interest rate discounts, principal rebates, or loan cancellation or forgiveness.
It’s crucial to be aware of your current benefits, your ability to make payments, and all of the changes involved in consolidating your loans. Because every borrower’s situation is different, we recommend speaking to a student loan repayment counselor about your situation to help figure out if student loan consolidation is the best choice for you.
If you need help figuring out what to do and how we can help, feel free to call Rick & Andy at 1-888-234-3907 for a free consultation or contact us using this form and we’ll get back to you.
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