Posted on Wednesday, 25th August 2010 by admin
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When you decide to consolidate your student loan, there are a few factors which you need to consider. Consolidating has both advantages and its disadvantages, therefore this be reviewed before you conclude any decision. Below are the 5 Major drawbacks of student loans consolidation:
1. Discharge and Deferment Benefits
There are various types of loans which provide you with several benefits. In the case of student loan you are provided with discharge benefits which means that if you discharge your loan then you would receive a sum of money after your graduation which you could use to pay off your loan. Where deferment benefits allows you to defer your loan payments till the loan ending period arrives. However if you consolidate your loan then all these benefits would be taken away hence consider this factor before making a decision.
2. Fixed Interest Rate
When you decide to consolidate your loan, there is a fixed interest that will be applied. This could be seen as an advantage or a disadvantage both. It’s an advantage because this way your interest rate would never go up and disadvantage that your the variability of your interest rate would end and you will be charged a fixed percentage. Fortunately, such drops won’t have a huge financial impact on those paying back their loans, but should still be considered.
3. Payment Schedule
Most students tend to opt for a loan that offers a long duration to pay it back. This is seen as a good thing intially since the student would be relaxed and wouldn’t be worried about paying the loan soon. However this has a major drawback to it as choosing a longer duration would mean paying a higher rate of interest. This is probably one of the most common ways that those in the student loan debt consolidation business capitalize on those who don’t know any better.
4. Eliminating Loans
Without having consolidated your loan, you would have to eliminate your own one by one which help make life easier for you. However if you consolidate your loan this means all the loans would be put up together and till you dont clear the total sum of loans you owe your loan will show that you owe money. Therefore its better to leave loans seperate and not consolidate them
5. Loss of the grace period
Consolidating your loan would make you lose your grace period. This is that period which the loan institution offers you that when you graduate you have a six month period where you have to make no payments so that you could find work and relocate yourself if necessary. If you consolidate during the grace period you have the potential to get a 0.5% interest discount on your new loan. This is a great way to save some money.
Therefore its recommended that before you make your decision you weigh all your possibilities to make the most cost effective decision.
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Tags: advantages, Debt, debt consolidation, disadvantages, drawbacks, student loan consolidation, Student Loans, Student loans in the United States, top 5
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