In this day and age most Americans are surviving week-to-week or at best, month-to-month. When we buy houses or cars, we frequently pay more attention to the amount of the monthly loan or lease payment than to the actual price of the house or car. With savings at an all-time low, many of us are forced to spend our money as we make it, and hope and pray we can keep up with payments.
The average college graduate, even from America’s top universities, is no different. Recent grads particularly feel the pinch, since parental support usually ends at graduation, and job hunting can take a few months. Even those fortunate enough to land a job straight away often find themselves in a low-paid entry-level position.
And to make matters worse, the new graduate – excited to start the career for which he has been preparing – is painfully reminded that he is now responsible for repaying $10,000 to $100,000+ in student loans. With the cost of education in America spiraling ever higher, an ever increasing number of college students must rely on student loans to finance a college degree.
One of the most important financial decisions a recent grad will make is the consolidation of his student loans. Consolidation brings numerous benefits to young adults starting out:
- One payment each month, to one lender, instead of many payments to various lenders, each due on a different day.
- Extended repayment period. The original repayment term for most student loans is 10 years – that’s pretty steep for someone on an entry-level salary. By extending the term up to 30 years, loan payments are reduced to a level that is much more manageable on an entry-level salary.
- Reduced debt/income ratio. One smaller monthly payment for student loans can result in an improved credit score and the general improvement of one’s credit profile. Starting a new career can mean needing a car, professional wardrobe, housing in a new city – all expensive. Having some credit available at such a critical juncture is a good thing.
Best of all, a consolidation loan allows the graduate the flexibility of paying off the debt in full when he wants or is able. There is no prepayment penalty for student loans that are consolidated under the federally-guaranteed program.
In closing, consolidating student loans is not for everyone. Stretching out payments over a longer time period does mean that the borrower pays more interest over the course of the loan. But for many who have finished their education, started a new job, and possibly relocated to a different city, a careful financial review will make it clear that the opportunity to consolidate student debt makes sense.