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Student Loan Consolidation: Simplicity in Repayment

  10/26/2015 by    in Student Loan Consolidation, Student Loan Repayment, Student Loans   Comments Off on Student Loan Consolidation: Simplicity in Repayment

A while ago we talked about refinancing your student loans. Now it’s time to talk about another great option: consolidating.

While refinancing your student loans will certainly help to get you a better interest rate, it doesn’t do a whole lot in the way of buying you time. Consolidation, on the other hand, is a great way to give yourself a larger window in which to pay off your loans, and it has the added bonus of simplifying the process of managing your loans. Student loans are tricky enough without having to try to keep track of them all individually. Consolidation is here to help with that!

What is Student Loan Consolidation?

When you take out student loans, especially federal loans through the FAFSA process, you are often left with a number of different loans, all with varying interest rates and monthly payments. I had 5 separate federal loans, ranging from $1,000 to $5,000 each, and interest rates of 3.6% to 6.8%. When it all becomes too much to keep track of, consolidation is a great option.

Consolidating your loans means that you essentially lump them all into one, either through your loan provider or through a third party, and compromise on the interest. The new interest rate is made up of the weighted average of the previous rates.

Nearly all federal student loans are eligible for consolidation, including: Direct Subsidized and Unsubsidized, Direct PLUS, PLUS through FFEL, Supplemental Loans for Students, Federal Perkins, Federal Nursing, Subsidized and Unsubsidized Federal Stafford and Health Education loans.

In order to qualify, you must talk to your loan provider and arrange a repayment plan, or agree to one of the pre-established plans, either Income Based, Income-Contingent, or Pay as You Earn Repayment.

What are the Benefits?

Consolidation comes with its fair share of perks. It simplifies your repayment into one bill, instead of several, which is extremely helpful when making payments. It also usually lowers your monthly payments, due to the longer repayment plan options, which gives you a greater window in which to repay them. Usually, repayment plans on student loans follow a 10 year plan, but with consolidation you can receive up to an additional 20 years, in some cases.

While the interest isn’t reduced, and consolidation won’t really save you anything in the long run, it is nice to only have to worry about one interest rate instead of multiple. Consolidation is a great option for making your payments more manageable and simplifying the repayment process.

You can prepay your loan without penalties at any time, and there are no application fees!

What’s the Catch?

As with every decision regarding your loans and finances, there are some things to consider. While it can simplify your repayment, other aspects of the loan will be changed as well.

Increasing the length of your repayment plan means you’ll end up paying more interest in the long run simply due to the length of the loan. So, it’s not really a money saver. This is especially true as the interest isn’t reduced, only lumped into one figure rather than many. You might also lose some benefits associated with your original loans, which will limit your options regarding rebates, discounts and cancellations in the future. Once the loans have been consolidated, it is irreversible, so be certain of your decision before you take action on it.

All in all, consolidation won’t save you anything in the long run. Lengthening your repayment term means the interest will add up, and you will actually end up paying more throughout the life of the loan. It can help lessen the monthly payment load, though. Longer repayment terms mean lower monthly payments, which can help reduce the risk of default if you run into financial hardship! It will also make things simpler as far as the number of payments goes. Do the math on your interest, and talk to your loan provider about your consolidation options!

Use the eStudentLoan Loan Consolidation Directory to help you find the best option for your student loan consolidation.

About the author

Trinya MurrayTrinya’s passion for helping others understand student loans started when she began learning all she could to fill in what she didn’t know about her own loans. She enjoys speaking at local schools about the cost of college and assisting friends with their finances. In her free time, Trinya also enjoys reading, writing, and playing music.

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