Consolidating student loans is a process that was originally intended to make student loans easier to manage—and repay. This is especially true when you consider that consolidating student loan debts minimizes the overall amount that the borrower will have to repay.
That’s the basic concept behind student loan consolidation anyway, and it usually makes things easier, especially when students understand what’s going on and know what to expect. Thinking about consolidating student loans, then, should be a priority right from the point of applying. If students aren’t consolidating student loan debts, mismanagement can occur. The student might wind up paying too much, which will cause said student to likely get buried in debt and eventually default. This is mainly due to high interest rates that compound the overall amount owed, and it does add up really fast. Consolidating student loan debts, then, has been the smart and expected move for all students on financial aid.
This was the way the process worked prior to July 1, 2005; since that point, however, changes have been made, and they haven’t necessarily been good.
The truth is that many lenders have been gradually dropping out. Why? They lose money on consolidation because of the minimized or reduced interest rates initiated through consolidating student loan debts. In light of this, they are finding it difficult to continuously offer more students financial aid.
The Student Loans Act, which was recently enacted, is intended to assist these lenders so that they stay involved and provide the much-needed funding that both students and educational institution need to function. The problem is that the United States Department of Education doesn’t have the authorization to buy students loans from lenders to alleviate the stress on the latter and provide the necessary incentives, and so lenders continue to drop out of the Student Loan program.
Obviously, this has affected student opportunities, because both students and colleges are desperately trying to find new lenders to pick up the slack. Still, as far as consolidation goes, this will inevitably run into further problems. Should many new lenders come into the fold, the funding will be there, but students will have to borrow from various lenders, making consolidating student loans either extremely difficult or impossible because consolidating student loans isn’t permitted cross-lender, only under a single lender. This would require students to sign new promissory notes when borrowing. Students need consolidation to allow their repayment process to be manageable, even possible, so this would hurt them severely and send them into great debt if consolidating student loans becomes a problem for them.
One option for students is to consolidate through one lender. That lender will, if its policies allow, “buy” student loans from another lender and consolidate all of the student loans in its possession. This appears to be the only alternative. Yet some lenders charge a fee for this, so students are advised to inquire before consolidating student loan debts, as it can and will allow the students to avoid any expensive mistakes.
As soon as federal litigation passes laws granting additional power to the Department of Education to buy loans and regulate loan lending, some much-needed relief will come for everybody involved, and consolidating student loans will be easier, especially if interest rates are lower. With several financial and tax-based incentives, many new student loan lenders will then take part, allowing both students and colleges to benefit without worry. Consolidating student loan debts relies on it!
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