From the time you enter college, you will begin receiving mail encouraging you to consolidate your student loans. Before you jump to consolidate, you should look closely at what student loan consolidation is to determine if it is the right decision for you.
Keep in mind that you will not be able to consolidate your loans until after you graduate or withdraw from school. If you choose to consolidate your loans, you may be able to extend your repayment period from 10-25 years up to 30 years. This will reduce your monthly payments but will greatly increase the total amount of interest you will pay to the consolidation lender. There are other pros and cons to consider as well:
Loans Eligible for Consolidation:
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- Subsidized Federal Stafford Loan
- Unsubsidized Federal Stafford Loan
- Direct Subsidized Loan
- Direct Unsubsidized Loan
- Subsidized Federal Consolidation Loan
- Unsubsidized Federal Consolidation Loan
- Direct Subsidized Consolidation Loan
- Direct Unsubsidized Consolidation Loan
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- Federal PLUS (Parent) Loan
- Direct PLUS (Parent) Loan
- Federal Perkins Loan
- Federal Supplemental Loan for Students
- Federal Insured Student Loan
- Health Professional Student Loan
- Federal Nursing School Loan
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Consolidation Pros
reasons to consolidate:
- Reduce monthly payments with an extended repayment period.
- Make just one payment to one lender servicer each month.
- There is no charge to consolidate.
- Lock in a low fixed interest rate.
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Consolidation Cons
reasons not to consolidate:
- Prolongs the life of your loan
- Forfeit original repayment incentives
- Possible elimination of deferment options
- Potential loss of grace period
- Possibly pay more total interest over extended repayment period
- Potential loss of loan forgiveness option under Stafford and Perkins
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Be An Informed Borrower
Check with your current lender to see if they offer loan consolidation. While you are no longer required to consolidate your loans with their original lender, you should be very cautious about responding to consolidation solicitations.
Review solicitation materials carefully. Some consolidation companies send very official looking correspondence that may resemble the Department of Education documents.
Determine the actual lender of the consolidation loan. It is best to deal directly with a lender who will own and service your loan for the duration of repayment, not a marketing company or call center that will sell your loan to a third party.
Click here to calculate your estimated consolidation payments.
Services that ALL lenders are able to provide through Federal Loan consolidation
- No fees for consolidating
- No prepayment penalty
- Combine all federal loans to one payment
- No credit check needed
- Hold the disbursement of a consolidation loan through the end of its grace period
Payment options that ALL lenders must offer for consolidation
- Equal Repayment
- Select 2 Graduated (The first two years of repayment are interest only)
- Select 5 Graduated (The first two years of repayment are interest only, the next three are intermediate before a final payment for the remainder of the term)
- Income Sensitive (Based on a formula of the borrower’s loan debt and income will never be less than interest only)
- Extended Repayment (If a borrower’s balance is $40K or more and no outstanding loans as of Oct. 7, 1998 they may extend their term to 25 years)
Click here to see a list of loan benefit terms frequently used by lenders.