To offer some assistance, the experts at Student Loan Forgiveness have put together some of the advantages and disadvantages of consolidating your student loans into a single student loan. While student loan consolidation may not be for everyone, it can have a positive impact on your long-term finances, and reduce the complexity of repaying your loans by streamlining them into a single monthly payment.
There are fundamental differences in the way federal and private student loans are awarded to individuals due to the distinctness of these loans’ conditions and requirements. This often makes it difficult to consolidate federal student loans with private loans through the U.S. Department of Education, but also holds true for consolidating loans through a private lender, such as a bank or other financial institution.
Multiple loans often mean multiple interest rates. When combined with multiple monthly payments, it can be needlessly confusing and stressful. Using student loan consolidation as a solution to these problems, the difficulty of repaying several student loans can be eliminated completely.
Here are just a few of the benefits of student loan consolidation if you’re considering this as an option.
Most people who consolidate student loans do so for one reason: to simplify the monthly student loan repayment process. As you probably already know, dealing with multiple payments each month, even to the same lender, can be frustrating and time-consuming.
Through consolidation, you’ll only have to make one single monthly payment to your consolidation lender, which is ideal if you’re someone who would rather be planning your next vacation than figuring out your monthly bill schedule.
Between variable interest rates and high interest rates, your student loans could be taking a huge chunk out of your monthly personal budget.
When you consolidate federal student loans into a single loan, the interest on your new loan is calculated by weighing the average interest rate on the loans being consolidated. Therefore, if you have student loans with both high and low interest rates, your new consolidation loan will be the precise average of all your interest rates put together rounded up to one-tenth of one percent.
Interest on private consolidation loans, on the other hand, are based on your credit score, credit history, annual income, as well as a few other factors. If your credit score is good, and you don’t have a history of making late student loan payments, you may be eligible for a lower interest rate than you currently have across all your loans.
Most people who consolidate their student loans find that their single monthly payment is much smaller than the individual payments being made on multiple student loans. This is especially true for those who have federal student loans under the 10-year Standard Repayment Plan, as the balance will have to be repaid within a 10-year period that starts soon after you leave school.
By combining these loans, as well as any others, you may be able to extend your repayment term on the new consolidated loan for up to 30 years. This not only lowers your monthly payments, but also gives you more personal income each month to do with as you please.
If you’re thinking of consolidating your federal student loans, you may become eligible for several student loan forgiveness programs that could eventually eliminate your student loan debt for good. While there may be numerous forgiveness options to choose from, qualifying for these programs is sometimes difficult. However, with a consolidated federal student loan, there’s a good chance you’re on your way to earning this considerable advantage.
Because every person’s situation is different, it’s important to know the potential downsides of student loan consolidation to determine if it’s the right choice for you.
Consolidating your student loans into a long-term repayment plan has its upsides, but it could also mean paying back your student loans for a longer period, meaning you will be restarting the repayment process over again. This could be to your benefit if it’s something that will lower your monthly payments and/or reduce your loans’ interest rates, but could increase the amount you pay overall as a result.
If you’re consolidating federal student loans into a private consolidation loan, you could lose some of the benefits associated with your federal student loans. The best way to avoid this is by combining your federal loans into a federal student loan consolidation, because it often provides similar advantages that you already enjoyed under previous repayment plans.
While combining your federal student loans into a single federal loan may not offer a big reduction in the interest you’re paying on your loans, it does streamline all your loans into a single payment. This is because your new interest rate will be based on the average of all your loans’ interest.
If you’re a private loan borrower with good credit and a steady income, however, you will often enjoy a lower interest rate than you’re currently paying across all your outstanding loans. This could make a big difference in the amount you’re paying each month, as well as the overall amount you’ll pay over the life of the loan.
Want to learn more about consolidating your student loans? Speak to a student loan specialist at (800) 771-6358 or fill out our online form to get connected right away. We can walk you through the options you have available, and help you find the best plan for you.