Loan consolidation is an option for students who are interested in combining their eligible federal loans into one monthly payment with one lender. This will be a new loan, with a new recalculated interest rate. This may seem like a great idea, but loan consolidation is not for everyone. Before jumping into this option, you should take a careful inventory of all your loans and compare their interest rates, current balance, borrower benefits, current repayment options and loan terms.
There is a separate consolidation process for federal loans and for private educational loans. You should work with your loan servicer to discuss all of the options and benefits you could potentially gain, but also lose. For example, typically it’s not a wise decision to consolidate your federal loans with your private education loans because you could risk losing all of your federal borrower benefits. That is huge! Also, generally speaking, in order for students to get more favorable terms in their private education loan consolidation the student must be in better financial shape than when the loans were first taken out.
If you're considering loan consolidation, here are some pros and cons to think about:
- You will be making one payment to one lender/servicer.
- By extending your loan terms, you may be eligible for a lower monthly payment.
- If your credit history has improved, you may be eligible for a better interest rate.
- Based on your credit check you may no longer need a co-signer.
- The interest rate you obtain through consolidation could be higher than your current rates, which may increase your monthly payment and your cost.
- The loan term may be extended, which will then increase the cost of the loan and increase how much you spend over the lifespan of the loan.
- You may lose borrower benefits with the new loan that may include the loss of tax benefits.
Keep in mind loan consolidation cannot be done while a student currently is attending a college or university. For consolidation to be an option the student must: have graduated, have loans currently in repayment, withdrawn or dropped below half-time enrollment, or have their loan status be in the grace period. Students also must continue to make payments or should make proper arrangements on their federal and private loans during the consolidation process.
If you still have more questions about loan consolidation, or you are wondering where you can apply, here is a link to get you started with the federal side of loan consolidation.
In regards to private loan consolidation, you will need to contact the bank or lender directly.
Estimate Your Monthly Payments After Graduation:
Loan Calculator: It’s important to know how much your loan payments will be after you graduate. Check out this online tool to help you estimate your monthly payments.
Estimate Your Salary: Do you know how much you’ll likely be making after graduation? If not, use this online tool to estimate your future earnings.