What are Student Loans and Student Loan Consolidation?

Student loans are loans given by banks and certain financial institutions in the United States (as well as in some other countries) to finance the education of students at all levels of their academic and training career.

A student may take student loans at different stages of his or her education. The loans may come from the same or different lenders. Student loans are to be repaid after the student has completed his or education and starts earning.

Types of Student Loans:

In the United States, student loans are broadly of two types: federal and private.

Federal: Federal student loans are those whose repayment is guaranteed by the federal government. If a federal student defaults on loan repayment, the government steps in and fulfills the student’s repayment obligation towards the lender. Given this guarantee, banks and financial institutions are more liberal with extending federal loans.

Private: Private student loans are loans extended by lenders at their own risk. Of course, students who avail of such loans are legally obliged to repay on pre-set terms and conditions. But, in case they default, the lender gets no support from the government and has to initiate its loan recovery process as with other loans. Lenders of private student loans are therefore more selective of who they are lending to, their lending rates may be slightly higher, and some of them may also demand collateral or a guarantor.

What is Student Loan Consolidation?

Now, let’s look at what student loan consolidation is all about. It usually happens that students take more than one loan to finance different courses. Loans are relatively easy to obtain, but the problem starts when repayment time comes. Each loan taken by the student is a separate repayment obligation.

Repayments against a number of separate loans add up to a sizeable amount, which many people (who are no longer students, but are full-fledged earners) find difficult to shoulder.

This is where consolidation comes in. In student loan consolidation, all the separate loans taken by the individual are clubbed into one loan with a single repayment plan, which usually works out lower monthly payments (in federal student loans, the difference could be as much as 50 per cent). Consolidation services are provided by specialist institutions and there are many intermediaries in the United States who draw up consolidation plans.

Student Loan Consolidation in Brief:

Student loans in the United States are broadly of two types: federal and private. Banks and financial institutions that provide student loans are more liberal with federal students because repayment is guaranteed by the government. The problem with student loans usually starts when the student has completed education and started earning, when he or she has to start repaying the loans taken as student.

Student loan consolidation is all about clubbing into a single loan all the loans a student had taken, so that the repayment is in the form of a single installment instead of one installment for each loan. Student loan consolidation usually results in a lower combined installment. There are many agents/brokers in the market provide student loan consolidation services in the United States.