Student Loan Debt Consolidation

n 2010, the Obama Administration took control of all student loans, meaning that it is no longer possible to negotiate and settle student loans for a fraction of what you owe. Unlike credit cards, that are unsecured debt, student loans are now considered secured debt.

(Secured debt includes things like your home. If you cannot make payments your lender can foreclose on your home or take it away. Similarly, with a truck or automobile. If you do not make your payments, they can come and repossess your vehicle. Unsecured debt, on the other hand, is debt such as credit cards or medical bills that state if you do not make payments, the creditor cannot take anything from you, hence the term unsecured.)

Students and/or parents, who have recently completed college or post-graduate work, can do something about their mounting and probably different number of loans outstanding. They can do what is called a debt consolidation of their loans. Briefly, let us look at why consolidation might or might not be a good idea for you depending on your circumstances.

If you are a student or parent who has been fortunate over the past several years to have enjoyed the low interest rates that companies were offering you when you took out your, this is probably not for you. By performing a debt consolidation of your low interest loans, you are most likely to experience higher interest rates at this time. Therefore, it may be difficult to keep track on these loans, however it is worth it in the long run, and based upon the low interest rates you received at the outset.

Another thing both parents and students should look at is if their loans are at variable rates. These are the rates that caused the housing market to go bust within the past few years. There is no telling which way interest rates will go, however since they are at historical lows right now, the only way they can go is up. For those folks, you may want to look at a consolidation loan with a fixed rate on it. This way you will know what your set payment will be each month.

Naturally, the benefit of being able to plan your economic future is made much easier when you know what your debt is and what their payments are going to be. In addition, you should realize that you are not likely to get the same low rates that you have had in the past, however at least you will know that they will not continue to go up.

Finally, the benefit to consolidating student loans is that it may affect your credit score in a positive way. How? By consolidating your student loans you are in fact paying off your old loans to take on the new consolidated loan. This may be reflected positively on your credit report. Also, it is just easier to make one payment than to make several. When considering whether or not to consolidate loans, do the math and calculate what scenario would work best given your circumstances.