If you are a recent college graduate, or your graduation day is in the near future, you may be interested in learning about student loan consolidation.
For some, consolidating federal student loans can be beneficial. However, you will want to look at your current situation before making quick decisions.
While loan consolidation can be an excellent option for some people, it is not the best choice for all.
You will also want to look at the types of loans you need to pay off. The only student loans that you can consolidate are federal student loans. If you have private student loans, those would need to be refinanced.
Learn more about student loan consolidation, the pros and cons of consolidating federal student loans, and when to consider making the jump.
What is Student Loan Consolidation?
When you consolidate federal student loans, you combine at least two or more loans into one loan. By doing this, you end up with one monthly payment and due date, which makes repayment more manageable.
If you have multiple student loans you could be eligible to consolidate your student loans for free through a U.S. Department of Education service.
Consolidating your loans is a big decision that you will not want to take lightly. Even deciding on the right time is something to consider, as you’re only allowed to consolidate federal student loans once.
Combining several loans will give you a new fixed interest rate that will remain the same until your new loan is paid off.
Examples of federal student loans that you may consolidate are:
- Stafford
- PLUS
- SLS
- FISL
- Perkins
- Health Professional Student Loans
- NSL
- HEAL
- Guaranteed Student Loans
- Direct Loans
When and How to Consolidate Your Student Loans?
If you’re a college graduate, you may consolidate your loans during a grace period (up to six months after your graduation date) or while your loans are in repayment.
You may also be eligible for consolidating your loans if you leave school or drop below half-time.
To roll all of your federal loans into one payment, apply for federal student loan consolidation by logging in to your FSA account at StudentAid.gov.
If you have a subsidized, unsubsidized, or PLUS loan, you can consolidate through the Direct Consolidation Loan program.
While the loan consolidation application process should only take around 30 minutes, approval could take anywhere between 30 and 90 days.
Even if you feel confident that you’ll be approved, continue to pay your student loans as usual. This ensures you don’t miss any payments, build up late fees, or harm your credit score.
What Are the Pros to Consolidating Student Loans?
There are various reasons college graduates choose loan consolidation. It can be a less stressful way for many to pay off their school debts.
The benefits of student loan consolidation include:
- One monthly payment
- One due date to remember
- Minimizes the risk of missed payments
- Lower monthly payments
- Access to income-driven repayment plans
- Access to forgiveness programs
- Access to COVID-19 emergency relief
- You can get a lower fixed interest rate
What Are the Cons to Consolidating Student Loans?
While there are plenty of great reasons to consider consolidating your student loans, it is not the best option for everyone.
For instance, while lower monthly payments can help in the short run, you may pay more in the long run when you consider interest. If you can afford to make extra payments, you should.
Consolidation may come with a lower minimum monthly payment, it’s still recommended to make extra payments when you can. It’s always best to pay off your debt as quickly as possible.
The disadvantages to student loan consolidation are:
- Accruing more interest over the longer loan term
- Staying in debt longer
- Unpaid interest getting added to your principal balance
- Losing out on some of your borrower benefits
- Principal rebates
- Interest rate discounts
- Ending your remaining grace period
- An increased interest rate, rather than decreased
Should I Consolidate My Student Loans?
Before deciding that federal student loan consolidation is right for you, you’ll want to do your research, consider your current situation, and reach out to professionals.
Many college planning specialists would be willing to listen to you and help you make the best choice for your future. You could also speak with your school’s financial aid office, the U.S. Department of Education’s Federal Student Aid Information Center.
Even with the help of others, be honest with yourself before coming to any permanent decisions.
Answering the following questions may help:
- Am I struggling to afford my current monthly payments?
- Will I struggle to make payments for more than half of the year?
- Will I make extra payments when I can afford to?
- Is my grace period over?
- Are all of my student loans federal loans?
If you answered yes to one or more of these questions, student loan consolidation may be your best option.
If you answered no, you may want to hold off on consolidating your loans until after your grace period ends and to see if your financial situation changes.
When in Doubt Reach Out
It’s an exciting time when you begin your educational journey. But no one really likes to think about the aftermath and debt they will be left with.
While learning the pros and cons of student loan consolidation may help you choose what is right for you, it is a big decision.
Once you apply and sign the documents, there is no turning back.
After speaking to a professional about your loans and finances, you will feel much more confident in your decision.
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