In the US, there is an option to consolidate direct student loans in order to manage the loan repayments better. This is something that can be done at no extra cost to the borrower, however there are certain aspects to be aware of, as with any loan consolidation. Here we discuss a bit about why you should consolidate direct student loans, as well as the pitfalls to watch out for.
The number one reason for consolidating student loans is so that the borrower can keep on top of their payment in a more simple way, knowing where they are and how much they have to pay, in one payment, each month. This makes the repayments more manageable, as you need only remember to pay one payment, and therefore less likely to miss out payments altogether.
This form of loan consolidation also means that all loans can be lumped into one repayment plan – with one set of repayment terms. This means that all the loans are then covered by the same terms, and the borrower only has to abide by one set. This makes it easier for the borrower to then stick to the set out terms and conditions of the loan.
This way of making repayments can then lead to loans being written off if the criteria is met too. If regular repayments are made over a number of years, then there are clauses in which the remainder of the student loan can be forgiven. This is more likely to happen in some cases when loans are consolidated, making the period of time they are paid over longer, and therefore fitting for the criteria of writing off the remainder of the loan.
There are aspects that are less favourable when consolidating student loans however. There is the downside that interest rates are not always reduced with student loans, as private loans are. In fact direct consolidation does add around 0.12% in interest, and this is added on top of the existing average loan interest. However, this is not always a reason not to carry out the merging of the loans. Calculations must be made before making the decision to ensure that the whole repayment program will be in your favour.
So, with strategy, the borrower can really make loan consolidation and new repayment plans for student loans work for them, with the opportunity for perhaps writing off the remainder of the amount owed, down the line.