9 Ways to Know if You Should Consolidate Your Student Loans

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It’s a new year and you want to get organized, but you’re not sure where to start. With all of your student loan bills staring you in the face, consider staring them back down.

What is Loan Consolidation?

Consolidating loans allows you to take all of your smaller loans and combine them into one, called a consolidation loan. If you do this, then you’ll be able to pay back all of your loans in one monthly payment—which will help you keep track of your expenses.

Woman with bills and computer

What Else?

If you consolidate your loans, you will also have new opportunities for deferment of your loans. You can also sign up for different repayment plans, which is helpful if you need to restructure your current schedule.

Consolidation loans provide access to plans other than the usual ten-year repayment schedule. For more information on varying repayment plans, click here.

Do I Still Pay the Same Amount?

Pretty much. Once you do the complicated math, the amount of interest you pay over time will be about the same. Combining all your loans combines all your interest rates.

What’s the Catch?

a) Loss of a grace period (you’ll need to start repaying right away)

b) Loss of subsidized benefits

c) As a result of the subprime mortgage crisis, it’s now more difficult to consolidate smaller loan amounts, so pay attention to special restrictions

What Should I Watch Out For?

False advertisers: If a company promises to significantly reduce monthly payments, it’s probably just stretching out your loan period, requiring you to pay more interest over time.

Is It Right for Me?

Check to make sure it’s worth it by using a loan consolidation calculator.

What’s the Federal Consolidation Loan Program?

You can consolidate all of your government loans into one bigger payment. This includes your parents’ federal loans, but not private loans. For more information on the Student Loan Program, click here.

How Do I Do It?

Submit a consolidation application online. The consolidation process usually takes two to three months, and during that time you’ll need to continue making monthly payments. Before committing, calculate your new interest rate and the duration of your payments. Typically, interest rates from each loan are weighted and averaged to make one single rate.

What About Private Loans?

Private can’t be consolidated with government loans, but it is possible to refinance them to pay only one monthly payment. Your repayment period will probably be reset to stretch the loan over a longer period, lowering your monthly payments. This will increase the amount of interest that you’ll pay in the long run, but it might make sense if you’re falling behind on your repayments. To find out more about consolidating private loans, click here.

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