To Consolidate or Not to Consolidate – That is the Question!
Written by: Sarah Miller for Student Choice
If you’re getting ready to graduate from college and you have student loans, you may have heard about loan consolidation. So what exactly does that mean? It’s possible that you have loans from different sources – federal direct student loans (from the Department of Education – formerly known as Stafford loans), Perkins, PLUS loans (for grad school or if you’re a parent), and likely even private student loans too. When you begin repaying those loans after graduation, you’ll be making several separate payments for each of them, and possibly paying different interest rates that could change over time.
What is student loan consolidation, and is it right for me?
Student Loan consolidation allows you to combine those individual loans into one loan, meaning one payment (or at least few payments), one (often fixed) interest rate, and possibly a longer repayment term.
Depending on how you structure your consolidation loan, you may save interest in the long run by paying your loan back sooner, or cut your payment making it easier to make your payment in the short term. By consolidating, you may also be able to explore different types of repayment plans. All of that could add up to benefits for you, the borrower. Just remember to consider your options carefully by weighing what you get against what you may be giving up. so where do you start?
What kinds of student loans can I consolidate?
While once upon a time, you could consolidate all of your education loans for a very low rate, that is, unfortunately, not the case anymore. Private student loans and federal student loans must typically be handled separately. For example, you can’t consolidate your private student loans through the government, and you can’t typically consolidate your federal loans through a private lender.
Consolidating your federal student loans.
Most federal student loans are eligible for the government’s Direct Consolidation Loan, including:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Subsidized Federal Stafford Loans
- Unsubsidized Federal Stafford Loans
- Direct PLUS Loans
- PLUS loans from the Federal Family Education Loan (FFEL) Program
- Supplemental Loans for Students (SLS)
- Federal Perkins Loans
- Federal Nursing Loans
- Health Education Assistance Loans
- Some existing consolidation loans
Consolidating your private student loans.
Consolidating loan you have with a private lender such as a bank can also make repaying your loans easier. In some cases you may also be able to lower your interest rate and save money of the life of your loan. By consolidating your private student loans with your credit union, you can eliminate the hassle of multiple private student loan payments. Just remember, you will need to consolidate federal and private funding separately.
If you’re looking for a credit union to consolidate your private student loans, you can start with our CU Select Tool to find a credit union that offers Loan Consolidation in your area!
Are there any cons to student loan consolidation?
When it comes to consolidating, it’s all about weighing the benefits you receive versus what you’re giving up. Remember, federal student loans carry borrower benefits such as alternative payment plans and interest rate discounts. For example, the Perkins loan carries forgiveness options that you could forfeit with consolidation (graduates can have up to 100% of a Perkins loan forgiven if they enter law enforcement, join the Peace Corps, or are deployed with the military).
If you choose to consolidate your loans, you will lose these benefits, so make sure you’re saving money or lowering your payment in a way that makes consolidating your loans worth while in the long run. If you have questions, you should always ask first before consolidating.
Finally, consider the overall cost of consolidating your loans. If you opt for a longer repayment plan to lower your payment (let’s say 30 years instead of ten), you’ll be paying more interest over the life of the loan. It’s up to you whether that extra time is worth it. Do you want to take 30 years to pay off your loans and still be paying on them when you have your own kids in college? That’s a scary thought and the interest can add up quickly.
What else should I consider before consolidating?
In general, many graduates can benefit from consolidating their loans. To learn more about Direct Consolidation Loans, visit http://www.loanconsolidation.ed.gov/. You can also check out their online calculator to estimate your monthly payments.
Student loan consolidation resources and links:
- Federal Student Aid – Office of US Department of Education
- Student Aid – Consolidation information
- Find a credit union lender to consolidate your loans