Studies show that the average graduating American student is in a debt of $22,700 on graduation. Currently 2 out of 3 students are graduating with massive amounts of debt, which is payable immediately after graduation.

If you’re a student who has graduated with the same problem, then you’re probably looking for solutions that can help you pay off the student loans as soon as possible. The amount of debt that a student has differs according to the amount of time they’ve spent during study. In fact, a student may even have accumulated more than one loan during their period of study.

Pros & Cons

Consolidating a student loan can seem like the perfect solution to your current loan issue but it is far from one-size-fits all remedy. Since each student has different kinds of loans (private or federal) and repayment plans, this decision needs to be made with thorough prior research.

One thing you need to ascertain is what your goals are, short term and long term. If you are currently facing problems paying off the monthly charges then your interest will be short term making student loan consolidation a viable option.

On the other hand, you may end up paying more on a long term basis. How student loans consolidation works is that your previous loans are paid off in order to provide you with a much larger loan which is spread out over a longer term. This means that you will be paying smaller amount each month which will accumulate to form a much larger number at the time of maturity of the loan.

Can you consolidate?

If you’re looking to consolidate then the very first thing you need to keep in mind is the type o student loan that you have on your hand. If you have a federal loan then you may be eligible for student loan consolidation. Private loans on the other hand are a more difficult matter.

Most students usually graduate with a combination of private and federal loans which cannot be consolidated together to form a larger consolidated loan. It may be possible to obtain 2 individual consolidations for the private and the federal loans but that would ultimately defeat their purpose.

It’s always imperative to have a good credit score at the time of applying for debt consolidation. Even if it’s not particularly high, you should at least have shown improvements since graduation.

This will indicate to the consolidating party that you are trustworthy enough for the consolidation.

Should You Consolidate?

Student loan consolidation is perhaps one of the first few adult financial decisions that a person has to make. This is why it must never be done in a hasty manner or without prior research.

One thing to consider however is that federal loans come with more benefits than privately consolidated loans.If you’re receiving federal loan consolidation then the interest rate will be governed according to the amount set by the government ad will be uniform throughout.

A private consolidating company on the other hand may have varying interest rates and you may even find options offering interest rates much lower than the federal set value.

Sources

http://money.howstuffworks.com/personal-finance/financial-planning/consolidate-student-loans.htm

http://www.investopedia.com/articles/younginvestors/09/consolidate-student-loans.asp

http://www.forbes.com/2009/04/15/student-loans-moneybuilder-personal-finance-consolidate.html