According to a recent article in the New York Times, many lending institutions are cutting back their participation in the federal student loan program. Once highly lucrative, federal student loans have become less profitable and consequently less popular with lending institutions as a result of recent legislative changes that reduce lender federal subsidies. With some of the nation's lenders declining to make federal loans to students attending certain types of institutions that lenders deem 'less-selective,' students who already have loans with one lending institution may have to borrow from a different lender. Consequently, more borrowers may be turning to loan consolidation to manage multiple payments to multiple lenders.
Is Consolidation the Answer?
It depends. Look at the following pros and cons when considering loan consolidation:Pros: Consider consolidation if :
- You make multiple monthly payments to different lenders and are looking for one monthly payment and/or a lower monthly payment
- Your monthly payment amount is unreasonably high when compared to your income
Cons: Consolidation may not be the answer if :
- You only have a few payments left
Do your Research and Consolidate with Caution
Consolidation can be a welcome answer to your financial problems but it's not a "one size fits all" solution. Before you begin the consolidation loan process, it's a good idea to consider all options and be fully aware of how your decision to obtain a consolidation loan impacts your long-term financial plan.Consolidation loans most often include education loans obtained through the Federal Family Education Loan (FFEL) or the Direct Loan Programs as well as federal Perkins Loans and some health profession loan programs. Consolidation loans are offered by the federal government and by lending institutions. If you've made the decision to obtain a consolidation loan :
- Talk with a financial aid office representative about deferment and forbearance options
- Visit the Direct Consolidation Loan website, which has consolidation information and FAQs, as well as an online consolidation loan payment calculator
- Contact lending institutions and find out what they offer in consolidation loan benefits
- Compare the information from all sources
Sources
- SmartMoney, Consolidating Student Loans Not Always Best Option, by AnnaMaria Andriotis
- The New York Times, Student Loans Start to Bypass 2-Year Colleges, by Jonathan D. Glater
About the Author:
Judi Sandall is a graduate of the State University of New York, with a BA in English Literature. She is a technical writer and editor who worked in student financial aid for over 20 years.
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