Should You Consolidate Your Federal Student Loans?

Should You Consolidate Your Federal Student Loans?

Many LearnVest readers are struggling with getting out of debt, and have asked us whether they should consolidate their government-issued student loans, and we listened. You ask and LearnVest answers.

Here are three big reasons why consolidating is helpful:

Your Life Is Simplified

You only have to pay one loan with one interest rate, which is much easier than keeping track of a bunch of creditors.

You'll Only Deal With One Entity at a Time

We DO NOT want you to default on your loans ... but if you do run into trouble, you'll only have to deal with one entity. It would be much simpler than if you had, say, five loans that weren't consolidated.

Repayment May Be Easier

Federal loans CANNOT be negotiated, but your repayment period can be readjusted. As of 2006, all federal student loans have fixed interest rates. When you consolidate, your interest rates are averaged together—so you'll be paying roughly the same amount as you'd pay otherwise. If you're having trouble meeting your payments right now, stretching out your repayment period may be a good thing. Be aware, however, that doing so will force you to pay more in total over time.

RELATED: A Checklist for Getting Out of Debt

But, according to Edie Irons, the Communications Director at the Project On Student Debt, a nonprofit independent research and policy organization dedicated to making college more available and affordable (funded in large part by the Bill And Melinda Gates Foundation), there's no penalty for paying more than the minimum on your federal loans. This is even if your repayment period is stretched out (which will reduce the amount you pay in total). If you can afford to pay back extra, do it!

Two words of warning:

Don't Mix and Match

Edie reminded us never to consolidate federal student loans with private loans, as people who do so will lose all consumer protection, forgiveness options, and the generally better rates of federal loans. Private loans are often issued by the same lenders who provide federal loans, and many students have both types of loans, so it can be confusing. If you're not sure what kind of loans you have, click here to find out. We recommend that you only consolidate government loans with other government loans.

RELATED: Getting Out of Debt if You're Struggling With Student Loans

Perkins Loans

Although consolidating loans is convenient, you might lose out on some benefits of Perkins loans if you consolidate with other federal loans. Click here for more information about this particular issue.

So, should you consolidate? Given the factors we laid out above, consolidation really depends on what's right for YOU. But, no matter what you ultimately decide, consolidation is something to be aware of, as a tool to make your life easier.

Did you know that has a whole section on loan consolidation? Read on here.


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