For many college graduates, paying off their student loans is a rude awakening to life after college. High interest rates and capitalized interest drain your bank account, and loan lenders fill the mailbox with letters and notices. Taking out another loan to pay off a high interest student loan can knock down the amount of paperwork and may save you some interest charges.
Look over your existing loan information carefully. Find your current interest rate and calculate how much interest charges you will pay over the life of your loan.
Compare loan offers from banks or consolidation companies. Figure out how much you will pay in interest under those other offers.
Consolidate your loans into one easy monthly payment. Contact online lenders or local bans and credit unions. Look for fixed rate loans rather than variable rate loans.
Make sure that your new loans have at least as many repayment options as your old student loan.
Choose which of your existing loans you want to pay off with your new loan. If some of your loans can't be beat when it comes to interest charges, then don't take out a new loan to pay for them.
- Consolidating your loan locks the interest rate for the life of the loan, which can be great or terrible depending on what the federal government does to the interest rate after you consolidate.
- Do not compare just the interest rate alone. Many lending institutions will offer a lower interest rate coupled with a longer repayment term, which spells more money out of your pocket. You have to figure the total interest payment when calculating the cost of a loan.
- Do not consolidate federal loans with private loans, as the federal loans have much better terms.
- Don't include Perkins loans in your consolidation loans. Perkins loans have a fixed rate and have many repayment options that a consolidation loan may not offer.
- Many consolidation loans offer a quarter-point incentive in exchange for electronic payments.