Getting a Debt Consolidation Loan While In Grad School

Graduate students often are in need of debt consolidation loans because they have a mixture of student debt and credit card debt. Unfortunately, graduate students are not the most credit worthy applicants because they typically have no income and no guarantee of income. As a result, these student loans can be expensive and significantly affect a student's finances.  Consider the possible rewards and risks before entering a consolidation program while in grad school.

Advantages of Consolidation in Grad School

  • Consolidate undergraduate and graduate debt - Consolidation programs can give you the chance to pay one monthly payment on all of your student debt.  Both graduate and undergraduate debt can be consolidated to simplify your finances and monthly budget.
  • Extend the life of your loan - When you consolidate, you can push back the due date on a loan. For example, you can pay off your original loan before it expires with a new loan that does not expire for another 5 or 10 years. This will give you time to graduate, get a job, earn money and establish yourself professionally before all debt is due.
  • Choose a better payment option - There are a number of payment options for students. You may select graduated payment schedules where monthly payments increase every year.  Or, you may select income contingent payment schedules which offer no repayment until once you have a paycheck. The payment is calculated bases on your earnings.  These types of options can help students that are placed in entry level jobs meet their financial obligations.
  • Choose a lower interest rate - If you feel you can get a lower interest rate on a few of your loans, consolidating may provide you with the chance to pay those off for a better deal. Technically, this is called refinancing your debt.

Disadvantages of Consolidation in Grad School

  • Graduate with more debt - If you consolidate and postpone your payments, you will potentially be adding to your future debt load. Consolidation is not settlement; your loans will not go away. It can take 10 or 20 years to pay off student debt. Starting early is key to building equity after you graduate.
  • Ding your credit score - When you first start work, you will not be very credit worthy. Recent grads have high debt loads, low incomes, and short credit history. Getting a debt consolidation loan while in grad school can lower your score even more. Consider the long-term effects of this before entering consolidation.
  • Pay higher interest rates - Most consolidation loans for grad students will have high interest rates. It is possible you have excellent credit and are just looking for a better deal; however, the majority of people seeking consolidation are not in this position. These loans are risky for the lender and expensive for the borrower.

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