If you have student loans, then you have probably heard countless people tell you to consolidate. In most cases, this is sound advice that can save you money. Before you consolidate your loans, however, you should learn about the pros and cons. Whether or not it is really your best option actually depends on several factors.

Pros of Federal Student Loan Consolidation

If you have more than one student loan from the government, then you can consolidate them into one account. Once you do this, you can take advantage of programs designed to make repayment easier. Recent graduates who can’t find jobs that pay them well, for instance, can apply for an income-driven repayment plan such as:

  • Income-Based Repayment Plan (IBR Plan)
  • Pay As You Earn Repayment Plan (PATE Plan)
  • Income-Contingent Repayment Plan (ICR Plan)

You’ll need to look at the details of each option to determine which one is right for you.

Federal consolidation can also extend your loan’s term. While this won’t lower your overall repayment, it will make your monthly payments smaller.

Cons of Federal Consolidation

Government loan consolidation cannot lower your interest rate. In fact, it may increase it slightly. When you consider this in the long term, it’s likely that you will face a larger overall repayment amount.

If you are a teacher or other type of public employee who plans to take advantage of Perkins loan forgiveness, you do not want to consolidate them. Doing so will invalidate your forgiveness option. You can, however, keep your Perkins loan separate.

Pros of Private Student Loan Consolidation

Private student loan consolidation is the only way to qualify for a lower interest rate. Depending on your credit score and your current interest rate, you could lower it by nearly 5 percent. That’s an obvious advantage that could save you thousands of dollars.

Private consolidation can also shorten your loan’s term, which means you can get out of debt faster.

Cons of Private Consolidation

Unlike the government, private lenders do not have to consolidate your loans. If you don’t have good credit, then they will probably deny your application. Graduates with credit scores under 680 could have a hard time getting competitive rates that save them money.

Consolidating with a private loan will cancel federal loan protections, so you can’t apply for deferment, an income-driven plan or any type of loan forgiveness. Once you consolidate, you still have to pay the full amount on time, just as you would with any other loan.

Loan consolidation works best for people having a hard time repaying their loans and people with excellent credit. If you don’t fall into one of those categories, then you may not benefit much.