INTEREST RATE

This is probably the most crucial element of any loan. From the interest rate you can compute the total amount of interest that you will be incurring annually on the loan. It is the first thing you should clarify with your lender and it should be in the contract.

There are two kinds of interest rates: fixed or variable. You may also see the interest revealed as the simple rate (or the principal amount) or as the APR, which also includes other applicable fees.

A fixed interest rate means that the interest rate is set, or “fixed”. It doesn’t change in the duration of the loan. The advantage of this kind of loan is that you are given the exact amount that you will be paying throughout the years. .

A variable interest rate, on the other hand, fluctuates during the duration of the loan. The rate can change per quarter or per year, as influenced by a benchmark interest rate set by the government treasury. There is usually a set ceiling amount.

The most important thing to remember regarding interest rates is when the interest rate begins accumulating. Some student loans let you capitalize the amount, which means even if it generates interest this is added to the amount you will give later on.

Fees

Most loans will come with a fee for processing and other administrative matter, and if you miss a payment, finance charges will be applied. It is very important that you do not miss a payment. Not only do you get finance charges but your credit history suffers.

TERM

The term is the total number of payments you will make and the time you have to be able to pay back the loan. This is inversely proportional to the total cost of loan. The longer the term, the easier the monthly payments, but the greater the total cost of the loan.

Do you have several student loans? Are you getting confused by the number of payments? Consider taking a Student Loan Consolidation, otherwise known as a Student Consolidation Loan.

This very convenient instrument allows you to take out a single loan, which will pay off all the other existing loans made by the student or parent. You are then left with just one loan, making it easier to monitor. This option is more common for private loans but you can also ask for one for FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct loans.

How do consolidation loans help?

Consolidation loans provide many benefits. First of all it extends the duration of the loan, thus making the monthly payments a little easier to handle. Compare this: most loans will have a maximum term of 10 years, but the consolidation loan will give you up to 12 years. This is very helpful for those who have a lot of financial responsibilities, or who anticipate that they will need to take a few lower income jobs at the start of their career just for the opportunity to get good training and hands on experience.

You may have heard of some special circumstances, such as when at least one loan were paid before the end of the 10 year period. The consolidation loan will then lower the monthly payment but will retain the maximum 2 year term. To turn this to your advantage continue making large payments, as high as you used to before, so that you save on interest.

Alternatives to the Consolidation Loan

The advantage of consolidation is that it’s easier to make payments, but there is a trade off .The interest rate increases, and so the total cost increases. Try looking at other options too. These include asking for alternate repayment terms. You can also ask for Income contingent payments, which will take into consideration the situation when you have a lower monthly income in the first few years following graduation. Extended repayment allows you to extend the term of the loan without consolidation. Although each of these options increases the total amount of interest paid, the increase is less than that caused by consolidation.

Financial aid can make a big difference to students from lower income households. They may be very intelligent and hardworking, and deserve to study in the best schools, but the tuition rates may be too much for their family to afford.

Naturally the students are grateful for the financial aid, and jump at the chance to study in the best universities. However, many are unprepared for the demands of juggling several loans. In their excitement at being able to enter a good college or university, they don’t bother to really check how much those loans are costing them.

The reality hits in the months after graduation, when the bills come in and the loan payments start running. Fresh out of school, often struggling with the small pay of an entry level job, they often feel they can barely make it through the month’s expenses, much less pay off a big loan.

That;s the advantage of a consolidation loan, which can help you take out one large loan to pay off existing debt, and then negotiating for better payment options. For example you can extend the term of the loan or ask for a few months’ reprieve (especially if you have been having a hard time finding a job).

A student loan consolidation plan consolidate your student loans into one loan thus you only need to make one payment each month. This will help to better manage your finances as now you only repay one loan.

Another benefit of student loan consolidation is that it can be one way of improving your credit history. Missing payments can affect your credit score. By taking out this ‘new” loan and paying off other debts, you will be able to start afresh and work towards improving your credit score.

There are so many different kinds of student consolidation loans. When choosing which one to take, look at the terms Compute how much it will cost you, and the difference it will make on your budget. Remember that because of the payment terms you will have to pay more in accrued interest.