Is Student Loan Consolidation the Right Decision For You?

Mar 17, 2016 by

What is Student Loan Consolidation?

Student loan consolidation is when you consolidate or combine multiple federal education loans into one loan. The result is a single monthly payment with one interest rate instead of multiple payments.

Is it right for you?

The upside:

Student loan consolidation can make loan repayment much simpler by basically combining your loans into one bill. Consolidation offers a variety of repayment plans which gives you up to 10, 15, 20 or even 30 years to pay off the balance of the loan. A longer loan term can lower the monthly payments by as much as 50 percent, making it much easier to work into your budget. It is also possible to switch your variable interest rate loans to a fixed interest rate. When you switch to a fixed interest rate you are taking no more risk of your rate fluctuating.

Lenders provide several different options for payment plans when refinancing and consolidating to borrowers who are free to choose the plan that best suit their situation. You also have the freedom to switch repayment plans at any time. Student loan consolidation repayment plans include the standard plan which is 10 years, the extended plan (25 years), the graduated plan which starts low and increases every two years for between 10 and 20 years, and lastly, the income-based which is 10-15% of your discretionary income. You also do not need a minimum or maximum amount to qualify for student loan consolidation. If you are seriously considering student loan consolidation, you can compare quotes online from different lenders all in one place which helps you to find the best rate and lender without having to do endless research.

Student loan consolidation is best for students looking for a longer pay off period and different payment options.

The downside:

As mentioned before you can increase the length of your repayment period up to 30 years, but this requires you to make more payments and ultimately pay more in interest. Be sure to compare your current monthly payments to what monthly payments would be if you consolidated your loans. Also compare the total interest you would be paying versus the total interest if you don’t consolidate. Also, take in to consideration losing any borrower benefits you have with the original loans like principal rebates, interest rate discounts, and loan cancellation benefits to name a few. These benefits can significantly reduce the cost of repaying your loans and you can possibly lose these benefits when consolidating. Another downside is even if you have excellent credit, student loan refinance and consolidation does not lower your interest rate. Instead the interest rate is calculated by the average of the individual loans plus an added 1/8 of a percentage, therefore student loan consolidation is normally not a money saving option.

Also, remember once your loans are combined into a student consolidation loan, they cannot be removed. The loans that were consolidated are paid off and no longer exist.

Why not just refinance?

Student loan refinancing is basically loan consolidation but through private lender who takes in to consideration your current financial situation (credit score, payment history and other variables). For students who do not have good credit this is not a good decision since it will only raise your interest rate.

On the other hand, if your credit is great, this is an encouraged option because the private lender will recalculate your interest rate based on your credit score and other variables which will more than likely lower your rate giving you money saving results.

Other Options

If neither student loan consolidation or student loan refinance seem right for you, there are other options you can look into.

Deferment: A deferment is a period during which repayment of the principal and interest of your loan is temporarily delayed. This means you do not need to make payments during this time. Also, depending on the type of loan you have, the federal government may pay the interest on your loan during this period. You need to first find out if you qualify for a deferment.

Forbearance: If you are unable make your loan payments and do not qualify for a deferment, you may be eligible for forbearance. With forbearance, you can either delay payments or reduce your monthly payment for up to 12 months. Interest will continue to accrue on your subsidized and unsubsidized loans. This is a good option for students who have had unexpected loss of income. You can request forbearance in the circumstances of either financial hardship or illness. This is called discretionary forbearance and you lender decides whether or not to grant it to you. Mandatory forbearance has other qualifications in which your lender is required to grant it to you if you meet the qualifications.

Student Loan forgiveness: In certain other cases student loan forgiveness is also an option if you qualify. Loan forgiveness is when the balance of the debt is no longer owed which is not very common but can happen. Things like death, bankruptcy, closed school, disability and other major occurrences can be grounds for loan forgiveness.


Overall student loan consolidation is a great option for students looking to have various repayment options to choose from and a longer loan repayment term. This is not a money saving option in the long run but in most cases does lower your monthly payment. For people solely looking to lower their interest rate, refinancing may be the best way to go if you have decent credit. For students who have unexpected loss of income or illness deferment and forbearance are things you would want to look further into.

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