In short, student loan consolidation is a way of grouping disparate loans under one umbrella and making a single payment to one entity that’s something like an average of all the loans. it typically serves to make things a bit simpler and can save you money, and that’s definitely worth looking into.
- it lets you pay just one entity rather than several lenders.
- it provides repayment options — from extended payment plans, to graduated, to income-sensitive and income-dependent options.
- it reduces the rate on certain loans, and allows for a potentially better rate with a different lender.
- It resets the clock on some deferred loans and some loans in forbearance, and restarts the loan repayment time.
Consolidation loans are available for most federal loans, including:
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Federal PLUS Loans*
- All Federal Direct Student Loans
- Federally Insured Student Loans (FISL)
- Federal Consolidation Loans (if you have an additional loan that is eligible for consolidation)
- Perkins Loans [formerly National Defense/Direct Student Loans (NDSL)].
- Federal Supplemental Loans for Students (SLS)
- Health Education Assistance Loans (HEAL)
- Federal Nursing Student Loans (NSL)
Before you consolidate…
- Do your homework: If you increase the length of your repayment period, you’ll also make more payments and pay more in interest. Compare your current monthly payments to what monthly payments would be if you consolidated your loans.
- Consider the impact of losing any borrower benefits offered with the original loans: borrower benefits from your original loan –which may include interest rate discounts, principal rebates, or some loan cancellation benefits–can significantly reduce the cost of repaying your loans. You might lose those benefits if you consolidate.
- Consolidating too early could lose you a grace period: say you decide to lump all your loans together the month after leaving college; the interest rate drops a tiny bit, but before you even find a job, you have to begin paying your loans.
Of course, the best way to understand the advantages and disadvantages is to talk to a financial professional.