Q: How is a student loan consolidation repaid?

A: When student loans are consolidated, the "consolidator" (your new lender) pays all off all of your old loans. Now you owe one grand-total sum to your new lender, with monthly payments organized under the terms of your consolidation agreement. With each payment you mail in (or pay electronically), a portion is devoted to interest and a portion goes toward paying down your loan balance (the principal). With time, the portion that pays down your loan balance grows larger, and eventually, when the balance reaches zero, your consolidation is paid off.

Typically, the borrower is given several options for the structure of the consolidation repayment. For example, you may be given the option of a 5-year loan at 7%, a 10-year loan at 7.5%, or a 15-year loan at 8%. The shorter the payback period, the higher your monthly payment will be, however, you will save considerably on total interest paid. Sometimes, of course, it makes sense to take a longer repayment plan, if that's the only way to make your monthly payment affordable.

Other Student Loan Consolidation FAQ's Related Student Loan Consolidation Articles
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