After graduation, many people find themselves with multiple Federal education loans to pay off. Some consider consolidating student loans. This makes repayment easier by combining the existing debt into a single loan. Then, borrowers only have to make a single payment, rather than a payment on each type of loan. Our debt counselors are here to look at the pros and cons to understand if consolidating student loans are beneficial.
ACCC has more information on paying off student loans.
Pros of Consolidating Federal Student Loans
Student loan consolidation can lower your monthly payments by increasing the amount of time you have to pay back the loan. Also, it gives you access to other student loan repayment options.
Variable interest rates? Consolidating your Federal student loans to a Direct Consolidation Loan will convert the interest to a fixed interest rate for the life of the loan. However, this is based on the weighted average of the interest rates on the consolidated loans. This fixed rate can provide stability and a lower monthly payment, although it might cost you a little more in interest.
Cons of Consolidating Student Loans
However, there are cons to consolidation. If your previous loans had any benefits, they will be revoked under consolidation. These benefits can include:
- Interest rate discounts
- Rebates
- Forgiveness
Also, consolidated loans also cannot be unconsolidated. This is because, after consolidation, the individual loans go to a “paid off” status and do not exist thereafter. Consolidation creates a new loan, separate from your original loans.
Consolidation can take place any time after the student has left school, graduated, or dropped-out below half-time enrollment. However, you should not consolidate your loans without carefully examining the pros and cons listed above.
Are You Eligible?
Most Federal student loans, which are backed by the government, are eligible for a Direct Consolidation loan. Private student loans that come directly from a private lending institution are also eligible. However, Federal and private loans cannot be combined into one loan together.
See, ACCC’s video on consolidating student loans for more information.
The benefit of consolidating your student loans depends on your financial standing and debt load. However, evaluating your situation with the pros and cons of consolidation can help you make an informed decision.
If you’re struggling to pay off debt, ACCC can help. Schedule a free credit counseling session with us today.
