Student Loan Consolidation
Should you consolidate student loans?
Student loan consolidation is a way to bundle your student loans into one new consolidation loan, reducing the number of monthly bills and possibly lowering your monthly payment. Plus, in the case of federal student loans, consolidation gives you the opportunity to lock in a low fixed interest rate.
But, consolidation may not be right for you, particularly if you only have federal student loans with fixed interest rates. You may be able to save money both in terms of your monthly loan payment and in the total amount paid if you do not consolidate your fixed rate federal student loans.
Please weigh the benefits and costs before rushing into consolidation.
When choosing a student loan consolidation company it is important to make sure that the company has your best interest in mind.
Many people prefer to consolidate with a company that they know and trust.
When choosing a student loan company it is recommended that you go with a loan company that offers all of the following types of loan services:
- Private Student Loans
- PLUS Loans
- Federal Stafford Loans
- Student Loan Consolidation
- Private Consolidation Loans
- You want the largest selection possible!
Whenever possible lock in a student loan rate. Some loans are based off the Treasury bill. In these cases, the loan rate fluctuates. This can either be really good if interest rates go down, or really bad if interest rates go up.
Only borrow as much as you absolutely need!
There are three primary reasons why you should weigh the benefits and costs before rushing into consolidation.
- First, Federal Stafford/Direct Loans first disbursed on or after July 1, 2006, have fixed interest rates. Thus, the fixed interest rate structure of the Federal Consolidation Loan provides no advantage if you have these new fixed rate loans.
- Second, many graduate/professional student borrowers likely now qualify for the Extended Repayment option on their Federal Stafford/Direct and Federal PLUS loans. That option provides a 25-year repayment period if you have more than $30,000 in eligible federal student loan debt and first borrowed an eligible loan on or after October 7, 1998. It allows you to reduce your monthly loan payment without having to consolidate.
- Most importantly, several student loan companies offer on-time payment incentives on Federal Stafford and Federal PLUS Loans that are more beneficial financially than those offered on consolidation loans.
Typically there are two types of student loan consolidation programs: Federal student loan consolidation and Private student loan consolidation. You may be eligible for both types. Use the information below to find out which type of consolidation loan is right for you.
Federal student loan consolidation
You may be eligible for federal student loan consolidation if you have:
- Stafford, PLUS, Perkins, HEAL, or other federal student loans
- At least $5,000 in federal education loans
- Any federal education loans in grace, repayment, deferment, or forbearance (and not in default)
Private student loan consolidation
You may be eligible for private student loan consolidation if you have:
- Private student loans from banks, credit unions, or schools
- At least $5,000 in private student loans
- Good credit or a cosigner with good credit
- Graduated from or will be graduating from a postsecondary program of study
Benefits of consolidating
Some benefits of consolidating your federal and private student loans include:
- Convenience of one monthly payment
- Possibility of lowering your monthly payment
- Valuable borrower benefits that can save you hundreds of dollars over the life of your loan
Once you consolidate your loans, you can often choose a repayment plan that suits your budget: standard (monthly payment is fixed over the life of your loan), graduated, extended, or income-sensitive.
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