Let’s face it – college is expensive and most students have to take out loans to cover at least a portion of the costs. As a result, the average student graduates with about $40,000 in student loan debt. Oftentimes that debt is not just in one loan, usually, it’s spread out over several federal or private loans. One of the things you can do to make your student loan debt more manageable is student loan consolidation. In this article, we will explore what it is and what the pros and cons of student loan consolidation are.
What is student loan consolidation?
Student loan consolidation is exactly what it sounds like – it’s a process through which you can combine multiple student loans into one loan, which might have a new lender. Essentially, after student loan consolidation your old loans will have been repaid but you will have a new loan in their place. This new loan will have new terms and a new interest rate.
What are the pros and cons of consolidating student loans?
There are both benefits and drawbacks to student loan consolidation, so consolidating your student loan debt might be a good or not so good idea depending on your exact situation.
On the plus side, there are many benefits that come from consolidating your student loans. For instance, if you consolidate your loans into one or two larger loans (one consolidated federal loan and one private student loan), it will be easier to keep track of them, which means you’ll be less likely to default on payments. You might also be able to get a lower interest rate on your consolidated loan, especially if your credit score has improved since the time when you took out your student loans. Plus, you might be able to negotiate a longer repayment period for your student loans, which will also lower your monthly payment.
On the downside, student loan consolidation can cause you to lose some of your borrower benefits such as loan forgiveness, payment deferments and more. Your new loan may also have a higher interest rate than your old loans, which means that you’d have to pay more as a result. Similarly, if you end up with a longer repayment period your monthly payment will become lower, but at the same time, you’ll have to pay more in interest since you’ll take a longer amount of time to fully repay the loan. Finally, some institutions offer flexible rates on consolidated student loans instead of traditional fixed rates, which means that the interest rate can rise over time and sometimes the increase can be quite huge.