After you have graduated from college or university, it will be time to start paying off your student loans. Since federal student loans are applied for each year, by the time you graduate, you will have several loans at various interest rates. A student loan consolidation makes perfect sense in this case.
By making a choice to apply for a student loan consolidation, a better rate of interest on the outstanding loan can be locked. The former student will also benefit from lower payments each month. This is important for individuals who are just starting their careers.
In addition to the benefits of a lower interest rate, a student loan consolidation makes sense from the point of view of the individual’s credit rating. When you choose to sign the documentation for a student loan consolidation (at any rate), your credit report will show that you have paid off all those outstanding student loans.
When your credit report shows that you have fewer outstanding loans (multiple student loans are replaced by one loan), the number of your credit score will go up. For future loans, a good credit score is vital to getting a better interest rate. Consider a student loan consolidation for this reason.
How to Apply for a Consolidation Loan
The first step in applying for a student loan consolidation is to fill out and submit the required application form. The application can be filled out either online or in a paper format. Once the application has been reviewed and approved, the lender will request payoff statements for each loan to be consolidated.
It can take some time for the consolidation lender to receive these payoff statements, so it is important that the former student continue to make the regular monthly payments on all student loans until the consolidation loan can be processed.
Once the interest rate and the student loan consolidation have been approved, a new federal loan will be taken out in the borrower’s name.
All of the previous student loans will be paid off completely. The former student will have the advantage of making one payment each month. The new payment will be lower, which will free up some cash in the monthly budget for other things.
If the borrower chooses to make these new monthly payments by way of an automatic withdrawal from his or her checking account, it is possible that he or she may be eligible for a lower interest rate on the student loan consolidation.