Should I Consolidate My Private Student Loans?
How And When To Consolidate Student Loans To Get The Best Terms Possible For students with multiple outstanding loans, it might be beneficial to consolidate loans into a single payment. When considering whether one should consolidate private student loans, there are several factors to consider, ranging from the direct costs to the affect of the restructuring upon one's credit history and rating. With various sources of student loans available today, debt consolidating provides a means to combine multiple loans into a single monthly payment. Rather than paying several monthly payments at variable interest rates, consolidation can ensure that you pay a fixed interest rate so you can better evaluate your financial situation going forward. Interest rates on variable loans are based upon the cost of capital, which reflects the lender's cost of borrowing. In today's market, these rates are relatively high, as investors are increasingly seeking a "safe harbor" against the shifts in global markets. Because of this, the variable rates on many student loans are currently increasingly. Just as global markets shift, however, so will the lender's cost of borrowing, especially as more capital flows into the market. Currently, Federal student loan rates are relatively low, as they are pegged to the 90-day Government T-Bill market, which has a lower yield as a result of increased investor demand - the spread between private and Federal student loans is near an all time high. As a result, you may want to consider refinancing your loans into a consolidated loan. When evaluating the relative merits of student loan consolidation, it's important to consider the nature of the new, restructured loan that you'll be taking on. If you have a lower risk tolerance, then shifting to a fixed-rate loan will benefit you in the long-run, as variable rates can shift along with changes in market demand for debt. It's best to consolidate loans at a time when you have a solid collateral to negotiate the best possible rate, which means, in practice, that it's best to consolidate loans once you have a stable job income upon graduation. There are multiple private consolidation offers on the market, so take time to evaluate multiple offers, just as you did with the original loan itself, as fee structures and interest rates can be highly variable across lenders. Consolidating student loans can be a smart option for many students in order to help shift to a debt free future. |
