The Basis And Function Of Consolidation Lenders For Students - Consolidation Facts

Consolidation lenders advertise the wonders of student loan consolidation on television, in print and online. You always hear the same aspects of consolidation advertised and may wonder what else happens when you consolidate your loans.

It is important that you understand all aspects of your major financial decisions. Consolidation lenders only tell you a small fraction of what goes into their student loan consolidation programs to get you interested enough to contact them. Before you make the call though, you should have some basic understanding of consolidation loans and how they affect your finances.

Understanding Consolidation

When you talk to consolidation lenders you will often be told that you can pay off all your student loans with a single monthly payment. That sounds great, but does not make much sense. How can it be possible to pay off your loans with a single installment? The statement is simpler than the process actually is.

The consolidation lenders pay off your outstanding student loans in full then issue you a loan for that amount plus their own charges and interest. Your loans are already paid off, what you have to pay now is their loan in a single monthly installment. While it seems like a great idea, you should be aware that this will increase your overall loan debt.

In paying off your outstanding loans you have to consider that they repay the loan principle and interest, plus any applicable charges for early repayment, late or collection fees and charging off fees. That coupled with the consolidation lenders' fees and interest makes the consolidation loan amount thousands higher than the total loan balance.

What and When

You will be able to consolidate just about any type of student loan one way or another. You can consolidate federal loans and private loans separately. In fact, it is better for you if you make sure not to combine these types of loans in a consolidation loan because you retain your federal benefits by keeping them apart.

Some federal loans are ineligible for federal consolidation but can be consolidated with a private consolidation lender. Consolidation lenders each have a particular set of loans that they handle so it is important to know what you want to consolidate before you start an application to be sure that your loans apply to the company.

Consolidation lenders often hint at, even state, a deadline for consolidating your student loans. There is no deadline for consolidation at all, which means you are not going to miss your chance to consolidate if you do not do so by a certain date. There is, however, an annual change to the interest rate that is handled by the federal treasury.

The change is made May 1st and takes effect July 1st each year. If you consolidate your loans prior to July 1st, you benefit from the previous year's (lower) interest rate. If you want to avail the lower rate you need to have your application done by June 30th, otherwise worry not because consolidation can be done whenever you like so long as your loans are in grace or repayment.