What is Student Loan Consolidation?
Student loan consolidation means merging several federal student loans into a single loan. This results in one monthly payment, making it easier to manage your loans.
Which Loans Can Be Consolidated?
- Federal Loans: You can consolidate most federal student loans, such as Direct Loans, Stafford Loans, and PLUS Loans, into a Direct Consolidation Loan.
- Private Loans: Private student loans can’t be consolidated through the federal process, but you can refinance them with a private lender.
Advantages of Consolidating Loans
- Simplified Payments: Instead of keeping track of multiple loans, you’ll only need to manage one loan and one payment.
- Lower Monthly Payment: Consolidation can reduce your monthly payment by extending the loan term, though it may increase the total interest paid over time.
- Access to Income-Driven Repayment Plans: Consolidation allows you to apply for repayment plans based on your income, which can make payments more manageable.
Disadvantages of Consolidation
- Possible Loss of Benefits: Consolidating may cause you to lose benefits tied to your original loans, like interest rate discounts or loan forgiveness eligibility.
- Higher Overall Interest: While your monthly payment may decrease, consolidating over a longer period can mean paying more interest in total.
- No Interest Rate Reduction: Your new interest rate will be the average of your existing rates, rounded up, but it won’t be lower than what you were paying before.
When to Consider Consolidation
- To Simplify Payments: If you have multiple federal loans and want to make your payments easier to manage.
- To Lower Monthly Payments: If you need a smaller payment, especially if you’re eligible for income-driven repayment plans.
- For a Fixed Interest Rate: If you want the predictability of a fixed interest rate across all your loans.
When NOT to Consolidate
- If You’re Working Toward Forgiveness: If you’re aiming for loan forgiveness (e.g., Public Service Loan Forgiveness), consolidating could reset your progress.
- If You Have Special Loan Benefits: If you have loans that offer perks, such as interest rate reductions or special repayment terms, consolidation could cause you to lose those benefits.
How to Consolidate
- Apply Online: Visit the U.S. Department of Education’s website (StudentAid.gov) to start the process.
- Choose Your Loans: Select the federal loans you want to consolidate.
- Pick a Repayment Plan: Choose the repayment plan that works best for your situation.
- New Servicer: After consolidation, your loan will be managed by a new servicer.