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Should I Consolidate My Student Loans?

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consolidate student loansRecently, a lot of press has come out about consolidating student loans. While TV makes everything look simple, there are several factors to consider when it comes to consolidation. Since every student or graduate’s profile looks different, here is what you need to know about student loan consolidation.

Overall, consolidation can be very helpful, but there are definitely downsides and situations that may not qualify. Let’s take a look at the different types of student loans, the benefits and the risks.

Consolidating Federal Student Loans

If you are considering the consolidation of your federal student loans, you will be applying for a Direct Consolidation Loan. There is no application fee for this loan and most federal loans qualify. A Direct Consolidation Loan combines all your student loans together, creating one loan and one monthly payment. Another benefit is the possibility of lower payments and a fixed interest rate.

If you find yourself struggling each month to pay the full amount due, this might be a good option for you. However, extending the repayment period means you will be paying longer and more money in interest. If that doesn’t appeal to you, but you are still struggling, there are other repayment options like the income based repayment plan or even deferment.

Consolidating Private Student Loans

Private lending institutions vary on their policies and offerings. You may be able to get nearly all the benefits associated with the Federal program, but you won’t know the details until you have gone through the application process. For example, Wells Fargo offers no application fee and the choice of a fixed or variable interest rate. But again, things may change once you start moving through the application process.

According to Finaid.org, your interest rate can be determined by your credit score. So if your credit score has improved since you first applied, you might secure a lower interest rate using a different lender. Since private lending institutions are competing with each other for your money, they offer competitive packages to consumers. Remember, they are first and foremost out to make money.

Overall Benefits & Risks

There are several benefits to loan consolidation that may apply to federal and private loans, depending on your exact situation. Generally, it makes life easier with one loan and one monthly payment to worry about. The interest rate will most likely change in your favor, with potentially lower monthly payments as well.

However, lower monthly payments mean more money out of your pocket spent on interest. It could also eliminate certain borrower benefits you were receiving from the original terms of your loans. Think carefully before consolidating, and make sure to look into all your options before committing.


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