Should You Consolidate Your Student Loans?

Photo (cc) by LendingMemo

Are your student loans putting a dent in your wallet? Fortunately, there are forms of relief available to assist.

Whether you’re having a tough time keeping up with the payments due to carelessness on your part or a lack of funds, consolidation is an option worth considering.

How it works

A direct consolidation loan, which is offered by the federal government, lumps all outstanding federal student loan balances into one new loan and grants you a repayment term of anywhere between 10 and 30 years. About 60 days after the new loan is disbursed, repayment commences.

Important considerations

While it may be convenient to consolidate all of your loans into one product, here are some factors you should consider before moving forward:

  • Streamlining. Although headaches associated with managing the various accounts and making timely payments come to a halt once you consolidate, you could lose some of your benefits. In essence, you are starting over with a clean slate, so the benefits from the other loans, such as rebates, interest rate discounts and cancellation benefits, will no longer apply.
  • Alternative payment plans. As I mentioned earlier, consolidating grants you a repayment period anywhere from 10 to 30 years. While this may lower your monthly obligations due to the extended repayment period, it could also tack on additional interest if the duration of the prior period was shorter. Therefore, you should compare your options before making a decision, as consolidating may cost you more than you think.
  • Fixed interest. Direct consolidation loans are assessed at a fixed interest rate, but there is no maximum limit.

Eligibility

According to StudentAid.gov, you must have at least one Direct Loan or FFEL Program loan that’s in repayment or in a grace period to qualify for a direct consolidation loan. You can apply for consideration upon completion of your program, if you withdraw or if your enrollment drops below full time.

What if your loan is in default? StudentAid.gov says:

If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or you must agree to repay your new direct consolidation loan under the

  • Income-Based Repayment Plan,

  • Pay As You Earn Repayment Plan, or

  • Income-Contingent Repayment Plan.

There is no application fee, and prepayment penalties do not apply if you decide to wipe out the entire balance before the term expires.

Alternatives

Having second thoughts about loan consolidation and unable to meet student loan obligations? You have several other options:

  • Deferment. You may want to contact your loan servicer to see if you qualify for deferment, which will delay the accrual of interest and suspend payments for a specified period of time.
  • Forbearance. Ineligible for a deferment? Try getting a forbearance, which delays payments during periods of financial hardship, for up to 12 months. The only downfall is that interest will continue to accrue on the outstanding balance.
  • Modifying a repayment plan. Still no luck? You have the option to switch repayment plans at any time. Simply reach out to your loan provider to make the request.

Private loans

What about private student loans? They are not eligible for consolidation under a direct consolidation loan, so none of the information I have provided thus far applies.

However, you can consolidate private student loans through several financial institutions, such as cuStudentloans.org. It caters exclusively to students with private loans, and offer rates at the three-year LIBOR plus 4.4 to 6.9 percent.

Unlike with federal student loans, your credit rating plays a huge role in whether or not your application is approved and the interest rate that you receive. Therefore, a co-signer would strengthen your case.

To qualify for consideration, you must be a U.S. citizen or permanent resident and a graduate of an eligible institution. In addition, your monthly income must be at least $2,000, or you will need a co-signer.

This page at FinAid describes other options for consolidating private student loans.

Have you consolidated your student loans? If so, what monetary benefits have you derived from doing so? Let us know in the comments below or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
Drivers Give These 5 Car Insurers the Highest Marks
Drivers Give These 5 Car Insurers the Highest Marks

One company claimed the top ranking in several categories.

10 Items Every First-Aid Kit Should Have
10 Items Every First-Aid Kit Should Have

Take control of your health and safety by customizing your own first-aid kit with these Amazon purchases.

8 Things You Can Buy for $1 or Less on Amazon
8 Things You Can Buy for $1 or Less on Amazon

They say you get what you pay for — but not always. Sometimes, you can uncover a good deal at a great price.

10 Ways Retailers Trick You Into Spending More
10 Ways Retailers Trick You Into Spending More

Think you’re a savvy shopper? Find out how retailers persuade you to dig more deeply into your wallet.

7 Ways to Save Money Without Trying
7 Ways to Save Money Without Trying

Saving money doesn’t always mean drudgery and sacrifice. These tools make it easy — sometimes even fun.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

How to Buy Gas At Costco Without a Membership
How to Buy Gas At Costco Without a Membership

The warehouse club often has some of the cheapest gas in town. Here’s how you can get it as a nonmember.

10 Things to Stop Buying If You Want a Clutter-Free Home
10 Things to Stop Buying If You Want a Clutter-Free Home

If you like to keep things simple, avoid these purchases.

A Simple Way to Silence Robocalls Today
A Simple Way to Silence Robocalls Today

A few steps can keep your phone from ringing when a spammer calls.

This Company Makes the Best Tires in America
This Company Makes the Best Tires in America

Driver satisfaction with tires is at an all-time high, but one brand stands out.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

Vacuums from this brand can last a half-century, if not longer — and they’re hot on the resale market.

This Health Issue Can Hint at Dementia Years in Advance
This Health Issue Can Hint at Dementia Years in Advance

One type of pain is especially associated with cognitive decline.

Can I Switch to Spousal Social Security Benefits When My Ex Dies?
Can I Switch to Spousal Social Security Benefits When My Ex Dies?

Knowing when to claim can help you maximize benefits.

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

This iconic dinnerware is prized for everyday use as well as reselling for profit.

Medicare Will Not Cover These 6 Medical Costs
Medicare Will Not Cover These 6 Medical Costs

Don’t let these health care expenses catch you off guard in retirement.

8 Things You Should Always Buy on Amazon
8 Things You Should Always Buy on Amazon

The giant retailer shines when it comes to these things, from basics to hard-to-find specialty goods.

Beware This Hidden Ingredient in Rotisserie Chicken
Beware This Hidden Ingredient in Rotisserie Chicken

Something foul may lurk in those delicious, ready-to-eat birds.

5 Ways to Get Amazon Prime for Free
5 Ways to Get Amazon Prime for Free

Hesitant to drop $119 a year on an Amazon Prime membership? Here’s how to get it for free.

5 Ways to Fill Your Pantry With Free Food
5 Ways to Fill Your Pantry With Free Food

Anyone can take advantage of these resources.

5 States With the Worst Health Care for Retirees
5 States With the Worst Health Care for Retirees

All of these states are located in the same region of the nation.

6 Reasons You Should Stop Hiding Cash at Home
6 Reasons You Should Stop Hiding Cash at Home

Stashing money around the house is anything but harmless.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

7 Big Purchases You Should Never Make
7 Big Purchases You Should Never Make

Sometimes a big-ticket purchase is nothing more than a big waste of money.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Sometimes the brand-name version is clearly superior.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.