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Janice France-Pettit: Managing your student loans

Union Bank of California

Posted: July 24, 2010 4:55 a.m.
Updated: July 24, 2010 4:55 a.m.

If you recently graduated from college and utilized financial assistance through a loan, you are likely thinking about repaying your college loans. According to a recent study by the Institute for College Access and Success, two out of every three graduates start his or her new life with some form of student debt.

In 2008, the average debt for graduating seniors in the United States was $23,200.

Borrowers are responsible for repaying student loans even if they did not graduate or cannot find work.

Typically, repayment of a student loan must begin six months after graduation, but in a weak job market, many recent graduates might be faced with difficulty making these payments.

If that is the case, the borrower does have some options, including consolidating the loans.

Consolidation is similar to refinancing a loan. For example, if you receive three bills every month for three different student loans, by consolidating you will make one monthly payment instead of three. The one payment will generally be lower than the three combined, helping to lower your monthly expenses.

Before considering whether to consolidate student loans, it is important to carefully consider a few advantages and disadvantages.

Advantages of consolidation
After consolidating loans, borrowers will likely have a lower monthly payment, and the interest rate is likely to be lower than the combined interest of the original loans.

Interest rates are still hovering at all-time lows, and if a borrower's credit score is more favorable now than it was when the loans were first obtained, he or she could get a lower interest rate.

The borrower has the opportunity to pay the loans back over an extended period of time, which will result in lower monthly payments. The borrower will also have one convenient monthly payment.

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Disadvantages of consolidation

If the borrower chooses an extended payment plan or a longer-term loan, more interest will be paid over the term of the loan. If the loan is large, this could result in thousands of dollars and could have a negative impact on the borrower's financial future.

In some cases, it is possible that the consolidated student loan rate will be higher than the interest rates on other loans. If this is the case, consolidation is not to the borrower's advantage.

If, in addition to U.S. government loans, the borrower owes private student loans that were not part of a financial aid package, they can be consolidated as well. However, the new consolidated loan will count as a private loan, and the borrower will forfeit the benefits that come with federal student loans, such as student loan deferment if he or she decides to go to graduate school.

Recent graduates may not enjoy facing the reality of paying off student debt, but careful money management and timely repayment can help build a solid credit history that may serve well in the future. To find out more about loan consolidation, including whether you may qualify, contact your banker or financial advisor.

Janice France-Pettit is a senior vice president and regional manager for Union Bank, overseeing the Simi Valley, San Fernando Valley and Antelope Valley regions. Her column reflects her own opinion and not necessarily that of The Signal. The foregoing article is intended to provide general information about retirement planning for businesses and is not considered financial or tax advice from Union Bank. Please consult your financial or tax advisor.



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