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Educational Loans and Debt Consolidation

By Charles Hopkins Published 10/29/2007 | Loans
The more volatile state of today's job market means that education is more important than ever.  It is no longer enough to earn a degree and then sit on one's laurels and stay in one position for the next twenty years, no matter what the field.  Given the increasingly technical nature of today's jobs, those people who don't keep current in their profession put themselves at the risk of obsolescence.  And the old truth still applies, that those who don't get themselves an education have fewer choices in life, and these choices are not usually the best out there.  In today's competitive business climate, companies look more closely at one's qualifications more than ever - so goes the employee, so goes the company.

Education is never cheap, however, and today's students often find themselves needing to avail of loans to finance their studies, which cost anywhere from thousands to hundreds of thousands of dollars depending on the course.  Sometimes exacerbating the situation is the reality that sometimes students take longer to finish their studies.  This means more loans and more to pay back.  This sometimes puts them in the unpleasant position of owing thousands and thousands of dollars, with repayments far outstripping what income they or their family might have.

What Makes Loan Debt Consolidation an Option for Some

Even in this situation, however, all is not lost since student loans in the US are guaranteed by the federal government.  One possible course of action the debtor can undertake is to consolidate their various debts.  Not limited to just student loans, debt consolidation is the taking out of a single loan to pay others.  A loan debt consolidation can have certain advantages that may make it attractive in some situations to debtors:

1.    Multiple accounts and repayments, which can be confusing, are replaced by a single payment which services all the other loans.
2.    A single loan with a single interest rate costs less than lots of loans with separate interest payments.  This is balanced by the fact that a consolidated loan may take longer to pay, and thus, the debtor might incur greater costs.  This means that another factor (aside from getting the lowest interest rate possible) in getting loans consolidated is to seek
3.    Fixed interest rates.  The fixed interest rate protects from future increases in interest rates and therefore increases in payments.

Student Loans and Consolidation

Student loan consolidation in the US is handled somewhat differently from private loan consolidation.  Depending on the type of loan, either a loan consolidation company or the US Department of Education will be responsible for loan closing, with the consolidated loan having a fixed interest rate.  Current consolidation policies concerning student loans allow them to be consolidated once under a private firm and then again with the Department of Education.

The federal government backing of some student loans (and their consolidation) makes them very attractive to debt consolidation firms, who know that they can claim their loans easily from the government.  This also makes it an attractive option for students who need to rely on outside funds for their education.  It isn't a cure-all nor is it for everyone, but when properly used, it can turn previously unmanageable debt into something manageable.