When is the Best Time to Consolidate Your Student Loan

You may have the option to consolidate your student loans at any point during their lifetime. However, you will get the biggest benefit from consolidating at certain points during your loan cycle. Ultimately, you should elect to consolidate when the financial savings are greatest and the punishments are smallest.

Consolidate When Market Is Favorable

There are many market conditions that may present an ideal time for you to consolidate your student loans. One such factor is a drop in the national prime interest rate. If the rate drops to a very low percentage, you may be able to easily get a new loan at a lower interest rate. This is only the case for good credit borrowers who will qualify for near prime rates. Since your existing lenders will be aware you could easily take a third party loan to pay off your existing loans, they may offer you direct consolidation. Direct consolidation is typically the best option to avoid consolidation penalties and damage to your credit score. Of course, directly consolidating federal student loans is nearly always an option and comes with very low to no penalty.

Consolidate When Personal Factors Are Favorable

Even if market conditions haven't changed, personal factors involving your financial situation or your loan contract may lend to consolidation well. If your income has improved significantly, for example, you may be able to afford higher monthly payments. These payments allow you to pay off the loan much faster, reducing financing costs over time. Conversely, if you have already paid off the vast portion of your loans, you may opt to consolidate the remainder with longer loan options. This would provide you with lower monthly payments. Individuals who will be making mortgage payments or even going back to graduate school may need to pursue this option.

Capitalize on Federal Incentives

There may be federal incentives that encourage consolidation during certain periods of time. One example was mentioned earlier: federal student loans can generally be consolidated at any time with no penalty. The federal loan programs may also offer to assist you in consolidating private loans during times of economic difficulty. This assistance will help borrowers who have suffered from job loss and other emergencies before it helps borrowers in good financial standing. You should check with the federal loan programs when you are looking to consolidate to see if you may be eligible for an affordable loan due to an economic assistance program.

Capitalize on Employer Incentives

Your employer may offer you the opportunity to consolidate or pay off a portion of your debts through assistance programs. If your employer offers this option, then consider yourself lucky. This is typically only the case if you are going back for a graduate degree with financial assistance from your employer. Then, you may be able to combine other loans into the employer-assisted loan program. This assistance typically comes with a contract from you guaranteeing you will remain with the employer for a given amount of time in the future. The degree you are receiving should also assist the employer in making greater profits.

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