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Education Consolidation Loan - Benefits and Drawbacks of an Education Consolidation Loan

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Life rarely allows the foresight to know exactly how much money is going to be needed for higher education. As financial needs and educational avenue change, learners often accumulate more than one loan under more than one lender. When the learner finishes their college education and the loan period ends, having too many of these loans can result in having income stripped away by several significant monthly payments.

There are a few solutions to this problem. Some borrowers flee back into the financial protection of college, buying extra time in the hopes that they will be making enough money to pay their debts when they emerge with a more impressive degree. Others do their best to shoulder the burden, comforted by the knowledge that they are paying off their loans as quickly as possible. Many try and fail at this approach, damaging their credit scores with late payments and fretting under the inevitable onslaught of collection calls.

An education consolidation loan, though, is the financially informed solution to post-education debts. It is called a consolidation loan because it consolidates, or brings together, multiple small loans into one big loan. An education consolidation loan is useful because it lowers monthly payments under a single interest rate, but the trade-off is that they significantly stretch out the borrower’s payment period.

In the United States, student consolidation loans can be negotiated through a bank, the government, or a consolidation service. Among these, the government offers the best deal—the <a href = “http://www.staffordloan.com/repayment/consolidation.php”>Stafford Loan, where federal student debt is purchased by the U.S. Department of Education. Federal student loan debt includes any government loans which were secured by the Federal Application for Student Aid (FAFSA). In the case of non-federal debts provided by banks, student loans can be consolidated by either banks or consolidation services.

Banks that offer student loans usually offer consolidation loans. This is a popular and safe option for student loan consolidation, as it involves dealing with an institution with whom the borrower is already familiar. To consolidate a student loan through banks, a borrower should contact their lenders and inquire about their debt consolidation options. They can then compare individual quotes and choose the one with the lowest interest rates.

A third option is the use of credit consolidation services, companies which earn their money on commission by receiving a portion of the debts they help secure for creditors. Credit consolidation services include such companies as Fannie Mae and Freddie Mac, which in recent years have been undergoing intense government scrutiny over their consolidation practices. With the state of credit consolidation in flux, cautious consumers may wish to avoid such services in favor of the government or a local brick-and-mortar bank.

Regardless of which service is used, borrowers interested in consolidation will need to have their loan amounts at hand to receive an accurate quote. To avoid the stress-filled guilt of looking up financial information while on the phone with a loan officer, borrowers should have a spreadsheet prepared with a list of each lender, account number, how much money has been paid, and how much remains owed. This will equip the lender with the information it needs to assemble a quote.

When loans are consolidated, the loan provider (government, bank, or consolidation company) negotiates an arrangement with the borrower where they agree to purchase their debts from other lenders. From here, it is on interest that an education consolidation loan provider makes their profit. Even if the borrower’s interest rate on the education consolidation loan is lower than it was on their other loans, the reduced monthly payment translates into a longer lending period. By taking longer to repay the loan, more money is paid overall to the provider.

The hurdle of paying more money overall can be overcome, however, through higher-than-necessary payments on the education consolidation loan. Even though a new minimum payment has been negotiated, there is nothing restricting a borrower from paying more than necessary, which means that any bursts in excess capital can be applied toward the debt to save money in the long term.

The convenience of consolidating loans into a single provider is another benefit of an education consolidation loan. Credit histories suffer whenever debt payments are late, and bad credit history limits the quality of loans available when borrowers start looking into homes, vehicles, and other life purchases. For many, particularly the less organized, paying each loan with one payment is a way to avoid making critical mistakes with far-reaching repercussions.

An education consolidation loan is a financially sound way to simplify loan payments. Despite the drawback of stretching out debt, it is worth the effort for learners who have accumulated multiple loans while pursuing their educations.

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