Consolidating Student Loans– is it a Good Idea?

Graduation season is upon us, which means that a whole new batch of students will be entering the workforce. But with that anticipation comes the stress of having to repay your student loans. If you’re one of the millions of graduates dealing with student loan debt, you will want to know your options. So, are consolidating student loans a good idea? The answer depends on your financial circumstances.

Are Consolidating Student Loans a Good Idea?

Student loan debt consolidation makes repayment easier by combining your existing debt into one loan. This way, you only have to make a single payment instead of multiple payments on each type of loan. It also makes you eligible for further loan repayment plans and forgiveness programs. The following are the pros and cons of consolidating federal education loans.

Pros & Cons of Consolidating Student Loans

In addition to having a single loan with just one monthly bill, debt consolidation can lower your monthly bill. It will increase the amount of time you have to repay your student loans. You may have up to 30 years to repay your loan. You also may be entitled to additional income-based repayment (IBR) plans and federal student loan forgiveness programs when consolidating loans other than Direct Loans. Lastly, you’ll be able to convert any variable-rate loans you have to a fixed interest rate.

However, if you do consolidate your student loans, you will lose previous loan benefits like interest rate discounts, principal rebates, or some loan cancellation benefits. You will also lose credit for payments made towards any IBR plan or Public Service Loan Forgiveness. Other cons include the extended duration of repayment time, which may cause you to pay more interest in the long haul. And after you decide to consolidate your loans, you cannot change your mind. This is because the individual loans are considered “paid off” and no longer exist.

Be careful when consolidating loans; the key to success lies in securing an interest rate that’s lower than what you currently hold. Otherwise, your consolidation won’t save you money, and you could wind up even deeper in debt. Some companies may try to take advantage of your financial situation for their own gain. Therefore, search for a reputable debt consolidation company like American Consumer Credit Counseling that has your best interest in mind.

Eligibility for Consolidation

In order to be eligible for consolidating your student loans, your loans must be in repayment or the grace period. In general, you cannot consolidate a loan again, unless you’re adding a new eligible loan into the consolidation. Defaulted student loans must be arranged with the loan servicer, or agreement to repay must be made under an approved repayment plan.

Even though you cannot consolidate federal student loans with private loans, you should contact your private loan lenders to see what options are available to you and how much they can lower your interest rate.

Be sure to research if you are eligible for and understand student loan consolidation, refinancing, and the pros and cons of each.

Maria Scenna is the Marketing Assistant at American Consumer Credit Counseling (ACCC) and is a regular contributor to TalkingCents Blog.  ACCC is a nonprofit financial education & counseling agency that has been providing consumers financial assistance since 1991.  

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