Consolidating Private Student Loans
Consolidating your private student loans or any student loans for that matter can make financial sense if you get a better rate of interest and your term of the loan remains unchanged or better is reduced. This is a crucial factor in deciding if consolidating your loans is worth it and if it makes financial sense.
If however your consolidating company offers to lower your monthly payments but increase your repayment term then purely from a financial perspective this does not make it a good deal for you. You don’t know have to know much about loans to understand what this means – the longer you stretch your repayment, the more interest you pay on your loan.
For the sake of argument, let’s assume that you are hoping to consolidate $30,000 of private loans that will enter a 10-year repayment at 8.9% interest. Right now, you would be looking at 120 payments of $378.41 a month. Consolidate that $30,000 into a 20-year loan at the same interest rate, and your payment drops to $267.99 a month – a savings of $110.42 a month. I’m sure you could put that extra $110 to good use.
But here’s the catch – over 10 years, your total payments will be $45,408.36. How’s that compare to 20 years, where your total payments will be $64,318.53?
What’s the privilege of cutting your monthly payment by $110 going to cost you? $19,000. Wow, that’s the list price on a Honda Civic, a Mini or a Pontiac G5.
Make that same deal on your government loans, and you’re looking at another $15,000 in extra interest. That’s quite a lot to pay. Before you consider consolidation, take a look at your lender’s other options, including Income Contingent Repayment, extended repayment, graduated repayment, and the brand new Income-Based Repayment. Do the math, and see which of these might make the most sense for you.
Don’t be in a hurry to consolidate or consolidate for the sake of it, there are several options available to you and unless you do your due diligence, it will prove to be a very costly decision.
Related Articles:
- Can I Get A Grant To Pay Off My Student Loans? We get this questions a lot and the short answer to it is Yes and No. There are no direct grants that will help you pay off your student loans but there is a relief program or also what is called as a forgiveness program where if you qualify you can have a significant amount ......
- Income Contingent Repayment What is Income Contingent Repayment? Previously, we talked about the income based repayment (IBR) plan. Today’s article will highlight the income contingent repayment program. Under various student loan programs you will see this repayment option referred to as the Income Contingent Repayment Program (ICRP) and the Income Contingent Repayment (ICR) option. These are the same ......
- Income Based Repayment vs Income Contingent Repayment What are the differences between IBR and ICR repayments? We talked quite a bit about Income based student loan repayment and Income contingent student loan repayment options in our previous articles. In this article let us take a look at the differences between the two. The first level difference between these two programs is the ......
- Student Loan Repayment Options We have talked about Student loan repayment quite a bit. Some of the articles that come to mind are the student loan employment repayment, Perkins loan repayment amongst many others. In this article, let us look at what your repayment options are when it comes to student loans. Looking at your repayment options might be ......
- How To Consolidate Student Loans First off, for those that are not clear or need more information about consolidation such as eligibility, what types of loans can be consolidated, how are the interest rates calculated and more, head over to our previous article on “What is Student Loan Consolidation” for a detailed overview of the process. There are dozens of ......
- Income Based Repayment What is Income Based Repayment? Income based repayment (IBR) for student loans is just as the name implies, a repayment plan that is based on your income. There are various types of repayment plans that are offered for each type of student loan, the income based repayment plan is primarily designed for those at a ......