Loans
February 11, 2015

Is It Smart to Consolidate Your Student Loans?

Simple. Thrifty. Living.

Have you recently graduated, or plan to graduate this spring? Unsure if consolidating your student loans is a smart option for your financial situation? Have more than one student loan? You may be eligible to consolidate your loans. Consolidating your student loans is a process where you take out a new loan that covers the cost of all of your combined student debt.  As it stands now, you can consolidate all federal student loans and most private student loans. Below are the basic pros and cons of consolidation:

  • One lender, one monthly payment. Loan consolidation means combining all loans from multiple lenders and consolidating them into one lump sum. One lender equals one monthly payment, simplifying your bills and reducing your loan payments to one simple payment.
  • Flexible repayment options. Most consolidation services offer multiple payment plans, typically with a more manageable monthly amount. Consolidation repayment plans include extended repayment, graduated repayment, and income contingent repayment.
  • Ability to switch lenders. By consolidating your student loans you will have a choice of new lenders, which can mean lower overall interest rates and lower monthly payments. In fact, consolidated loans may very well lower your monthly repayment. This occurs because consolidated loans offer 15-30 year repayment plans whereas standard repayment plans are usually for 10 years. This allows borrowers to better manage student loan debt.
  • Overall interest rate may be lower. Unconsolidated loans may have variable interest rates, while consolidation gives you the option to lock in a lower fixed interest rate.
  • Some deferments and forbearances will reset. A consolidated loan is essentially a new loan, with its deferment and forbearance terms resetting. This may be a usual tool for medical and doctoral students, who do not get an in-school deferment during their post-doc and residency periods.

Depending on your situation, consolidating your student loans may not be a good fit for you. These disadvantages may include:

  1. Paying more in total interest. When you consolidate, you renegotiate your interest charged. Depending on your current interest rate you may not want to consolidate. If you do consolidate, keep in mind you become locked into that interest rate.
  2. Extended loan payoff period. One of the biggest problems with consolidation is that you end up paying much more in the long run. This is especially true if you renegotiate your repayment plan, tacking on many more payments and interest, which can equal thousands of dollars in the long run.
  3. Elimination of grace period. If you consolidate during your initial grace period you will start repayment immediately regardless of where you are during your six-month grace period.

There are a number of factors to consider when choosing whether or not to consolidate. Even though consolidation can provide convenience, these loans may have higher interest rates. Student loan consolidation isn’t for everyone, however if the pros outweigh the cons for your situation and you’d like to consolidate your student loans, be smart about choosing the best lender for you. Achieve Lending is a program that provides several different consolidation offers from various lenders, all in one place, allowing you to review interest rates and repayment plans without doing all of the hard work.

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