Student Loan Consolidation - A Real Look at the Pros and Cons

Loan consolidation has many benefits. But before you sign on the dotted line, read up on the pros and cons.

Chances are, you don't even want to think about your student loans yet. You've got at least six months before your grace period ends, and you want to enjoy them. Take a few minutes now to ponder loan consolidation, however, and you might ease the pain of repayment. The Federal and Direct Consolidation Loan Programs are powerful financial management tools that can help you manage the repayment of your federally guaranteed student loans. Established by Congress as a means of helping student loan borrowers cope with their educational debt, the Consolidation Loan Programs allow you to combine all of your eligible Federal education loans into a single new loan, typically resulting in a significantly lower monthly payment due to the flexible repayment and extended repayment term features.

Why would I want to consolidate?

There are many good reasons to consolidate, including: 1. The potential of lower monthly payments. 2. One monthly loan payment (instead of several). 3. A low, fixed interest rate that cannot exceed 8.25% at any time, coupled with national interest rates at a 40-year low. 4. An easy application process that does not include a credit check or any application, origin or processing fees. 5. Flexible payment plans and terms that allow you to design a repayment plan that best suits your financial needs both now and into the future as your financial circumstances change. 6. While you don't need to consolidate in order to take advantage of this one, you can knock an additional .25% off your rate by making your monthly payment electronically. This electronic debit option does more than save you money - it decreases your chances of forgetting a payment. 7. The option to prepay your loan at any time without incurring a penalty.

Why wouldn't I want to consolidate?

Of course, consolidation has a downside:

  • Take note of interest rates. If you consolidate high-interest loans with low-interest loans, you may be paying a higher rate on average. So do your math; if the majority of your loans are high interest, you may want to pay that low-interest loan off separately.
  • Beware of payment flexibility. It's great to have the option to make low monthly payments over a longer span of time. Just keep in mind that the total amount you pay on a loan will end up being higher because of all that interest piling up.

Who qualifies?

  • Student borrowers that are currently in their grace period or in active repayment who owe money on a eligible student loans (for example, Stafford loans).
  • Those enrolled in school at least part-time can consolidate if they have a Direct Loan Program Loan or attend a Direct Loan school.

Still Confused?

Everyone wants you to pay your loans in a timely manner, and most student loan lenders — federal or private — will be glad to help you find the best plan for your needs.