college

College loans: Graduate then consolidate?

Chris Collins"Hey graduate, now that you've earned your degree, what are you going to do next?" Unlike Super Bowl winners, you're not going to Disney World if you've left college with a load of student loans. To manage the debt, you might be thinking that consolidation can streamline and maybe even lower your monthly payments.

A plus of consolidation is that students will only have to make one monthly payment; a minus could mean that the borrower makes more payments and pays more in total interest, according to Chris Collins, the associate director of the San Diego State University, or SDSU, Office of Financial Aid and Scholarships. In this interview, Collins discusses the benefits -- and the pitfalls -- recent graduates might gain by taking out consolidation loans.

QuestionWhat advice would you give to recent graduates who are burdened with paying off student loans?

Answer(It is hoped) the former student is starting from a good place by having managed his or her borrowing appropriately and only taking those loans needed for educationally related expenses. There is not an overriding interest rate benefit to be gained by a consolidation loan since servicers and the government use a weighted average on the loans being consolidated. It is more a matter of convenience, as the borrower will only have one monthly payment to make. Students who experience a financial hardship, such as not being able to find a job or being underemployed, can seek other remedies to postpone their loan payments, including deferment and forbearance. There are also alternate loan repayment plans including extended, graduated and income-based repayment that can reduce the amount of the monthly payment owed by the borrower.

QuestionWhen considering college loan consolidation, is it better to consider federal loans or private loans?

AnswerGenerally speaking, private loans cannot be consolidated with federal student loans, and not all private lenders offer consolidation. When a lender is willing to consolidate private loans, the primary benefit is that the borrower gets a single monthly payment. Students should check with individual lenders about their consolidation policies and always pay special attention to the fine print in any agreement they are considering.

QuestionWhat are the pros and cons of college loan consolidation?

AnswerThe pros would include that there is no cost to consolidate and the student will only have to make one monthly payment. The student can also benefit from the fact that the single monthly payment can be lower overall than the combined payments of unconsolidated loans. However, if the length of the repayment period is increased, it would mean that the borrower makes more payments and pays more in total interest. In addition, a borrower could lose benefits offered as a condition of the original loans.

According to an article published by Consumer Reports last May, the average debt per graduate, class of 2011, is $22,900. If you are among the masses bogged down by college loans, it might help to know that you are not alone, but it will help more to know the pros and cons of debt consolidation so you can begin to make your way to financial freedom.

We would like to thank the associate director of the SDSU Office of Financial Aid and Scholarships, Chris Collins, for sharing his insights.

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