Education, especially in
good colleges, can prove to be very costly. At times, students tend to take
various loans of different amounts and sometimes different categories of loans
to meet their expenses for completion of their graduate program. All these
loans whether subsidized or unsubsidized have their own interest rates and
repayment schedules. Tracking all these separate loans with their repayment
dates would be very cumbersome for a student who would be busy settling down
their careers.
Students who are busy
with settling their career after completing their studies need to concentrate
their energies on their work rather than on other aspects of their life. Adding
an extra burden of handling their loans would only aggravate their stress
levels. Also, at times the students completely forget about their multiple loan
schedules and often end up defaulting on their loans.
One of the easy methods
to avoid the chaos would be to consolidate all the loans taken or converting
multiple loans into one loan. Though this is easier said than done, but this
would not only reduce confusion and ambiguity regarding multiple loans but also
make repayment efficient and timely. But before taking a decision regarding
consolidation, they should know all about their loans.
Complete Knowledge of Accrued Loans
In order to manage the
loans, the students should know the types of loans taken. The National StudentLoan Data System would help them in gaining all the knowledge regarding the
type of loan they want to or have taken. Another thing that the students should
be aware of is that different interest rate imply at different times. The
database mentioned above would also tell them about the interest rate and what
they need to pay back. The students should also know whether they are likely to
a pay a fixed rate of interest or a floating rate which changes according to
the change in interest rates. A consolidated loan would be a good solution in
this case as well since it would consolidate all the loans and an average rate
of interest would be fixed for all the loans accrued.
A note of caution here
would be the types of loan being consolidated. If high interest rate loans are
clubbed with low interest rate on, the borrower would have to shell out a
higher average rate of loan which is not favorable. Also loans taken from
private parties should never be consolidated with those taken from the Federal
government.
Being acquainted with the loans taken
The students should be
acquainted with all the features and benefits of the loans they have taken. In
fact, they should be acquainted with the types of loans available before they
actually accrue such loans. For example, the Perkins Loan provides an option of
forgiveness of loan which the Stafford or PLUS Loans don’t offer. Perkins Loans
are forgiven in case the student after studies joins any of the jobs which
serve the nation or the society such as defense, law enforcement, science
education etc. Grad PLUS, Perkins, and Stafford loan offer a benefit of
attaching repayment to the income of the student. Such a benefit is not offered
to students who have applied for a Parent PLUS loan.
Thus consolidating loans
with some type of benefit with other loans would not be a wise decision as it
will nullify the benefit.
Consolidation is only a Solution to Avoid
Defaulting
Applying mere common
sense would tell us that though when we consolidate our loan it is easy to
track since it is just one loan and one repayment. But the point to be
understood is that after consolidation, the debt is consolidated and thus the
time increases and repayment is lower, thus paying up more in the due course of
time. It is comparable to a 10 years loan to 20 year loan of the same amount,
the total payment is longer in case of 20 years since the interest component
paid to hold such money for 20 years would obviously be much more. Therefore
the option of consolidation should only be taken up by those who are at a risk
of defaulting and not by them who are wise enough to keep a tab on all their
borrowings.
Short and Long term Benefits should be Analyzed
In case a student, post
their education are joining a field where their incomes would steadily grow
over a period of time, consolidation of their loans might not be a good option.
Rather they should opt for the benefit of repayment based on their incomes. But
in case a student joins a more stagnant field wherein the income would remain
more or less same, they should opt for consolidation. Also those who have
tendency to default or already have aberrant loan history should apply for
consolidation.
