EDU Loan Support

Should You Consolidate Student Loans?

If you have student loans it may be hard to know what the right answer is.

Consolidation is one of those words that invokes an image of simplicity, organization, and perhaps even tranquility. Instead of countless bills, you can simply consolidate and deal with one lender. In the case of student loans, consolidation means you can deal with fewer creditors, and with paying less interest over the life of your loan. 

e words that invokes an image of simplicity, organization, and perhaps even tranquility. Instead of countless bills, you can simply consolidate and Reasons For Consolidating

There are several reasons why you may want to consolidate your student loans. For one, consolidating student loans simplifies your debt repayment process. Instead of lots of lenders to deal with, you can deal with one lender and one debt. Even if you have several federal student loans and several private loans, you could consolidate the federal loans together, and then consolidate the private loans together, leaving you with only two lenders to deal with (you cannot consolidate federal student loans with private student loans).

A second and very common reason to consolidate your student loans is to take advantage of lower interest rates. You can lock in a lower fixed rate, for the life of the loan and not have to worry about rate increases over the years.

A third reason for some people is the desire to lower their monthly payments. Sometimes consolidating your student loans will allow you to get a lower monthly payment (although this may lead to a longer repayment terOf m). 

Reasons to Be Cautious of Consolidating Your Student Loans

For the reasons stated above, you may be tempted to take a lower interest rate in exchange for paying on the loan for many more years than the original loan repayment period. In situations where you do not have employment, or otherwise do not have money, this could be a great option for you so that you don’t find yourself in forbearance in the short-term. However, you would need to look at the long-term implications of extending your loan repayment period.

A crucial question to ask during any consolidation consultation is how much interest you will be paying over the length of the loan repayment period for each of the options they are presenting to you.

You should also be aware that when you consolidate a student loan you often lose any lender benefits from the previous loans. For example, lender benefits you received from your original student loans included a 0.25% interest rate deduction if you scheduled automatic payments, and a 1% interest rate deduction after making 36 on-time and consistent payments. Had you consolidated with a different lender, then these benefits would have gone away.

Finally, safeguard your new interest rate that it is lower than your current interest rate. This is usually the main point of consolidating loans, and one that could greatly help accelerate your debt repayment. If you combine several loans together and one has a high interest rate, it could end up making the interest rate for the consolidation loan higher than necessary — and cost you additional funds. Also, if you happen to lock in a certain interest rate through consolidation and later realize that you could have gotten a lower rate, it will probably be too late.

Interest Rate Strategy in Consolidating Your Loans

After carefully considering the pros and cons, if you are interested in consolidating your student loans there is one more thing to consider: your strategy. The interest rate you will be given is going to be based on all of the interest rates on the loans that you currently have, so be sure to work with the student loan debt consolidator in finding the best formula of debt consolidation.

In other words, if you have four federal student loans with interest rates at around 3%, and one with an interest rate of 6%, then you might not want to consolidate the 6% interest rate loan in with the others as it will increase the rate on the bigger lump of debt. Instead, pay the minimum on the consolidated sum of debt and turn your energy towards eliminating the unconsolidated loan.