January 14, 2019
By Mary Beth Eastman

What Consolidating Your Student Loans Means

Simple. Thrifty. Living.

Like many Americans, you may have multiple student loans financed through the government or private lenders. If you are feeling overwhelmed by these financial obligations, you can take action to simplify your repayments. Some borrowers choose to go with a top student loan refinancing company to refinance their loans. This can lead to lower interest payments and longer repayment terms. You, however, may simply want to make one loan payment in lieu of three or four. You can accomplish this task by consolidating your loans.

When you consolidate your federal direct loans, you end up with one monthly payment instead of several. That can help you better budget your resources and stay current with your payments. Consolidation also can lower your monthly payments by giving you more time to repay what you owe.  Use our handy guide to research the best debt consolidation companies for your student loans. You could have up to 30 years to repay all of your loans after consolidation.

You can also consolidate other loans under the government program and, in some instances, be given more repayment options. Those options include income-driven plans and Public Service Loan Forgiveness, also known as PSLF. If you have variable rate loans, they can be converted to a fixed rate loan, which protects you from unsettling interest fluctuations.

In general, student loan consolidation is a positive for borrowers, but there are a few possible drawbacks. The longer repayment time means you can end up paying more in interest and carrying the obligation longer. Also, when you consolidate your loans, any outstanding interest you have becomes part of the principal balance. That means your new interest rate will be paid on a higher loan amount. You may be trading a short-term advantage for a long-term problem.

The government warns that you may lose some benefits, such as principal rebates, that come with your current loans. Also, consolidating may cause you to lose credit gained for making payments under the income-driven repayment plan and PSLF. Lastly, you must watch out for student loan scams. Use good judgment in researching companies that can help.

You can take action to make your educational loan payments easier to handle. Before taking action, carefully consider all of your options by discussing them with a financial adviser. You may be better off leaving some loans out of your efforts, depending on their individual terms. Remember, consolidation is not the same as refinancing. Your loan interest rate may well remain unchanged.

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