Loan consolidation is one of the ways a person can start improving their financial situation. By combining loans into a single plan, it makes debt easier to manage. Loan consolidation, however, can be a confusing process if you don’t know what to do. Here’s how to consolidate student loans with the government.
How Does a Federal Student Loan Consolidation Work?
As the name implies, this type of consolidation only works for federal/government loans. You can combine multiple loans into a single one through the Department of Education. Many people pursue this to extend the loan or gain access to federal programs. By doing this, they may be able to qualify for loan forgiveness or a lighter repayment option.
Federal student loans do not lower your interest rates or payment unless you get into a repayment plan. The truth is you may even pay more in interest if the loan extends. The benefit is that you’ll only pay one bill once a month. It also becomes easier to start lowering the interest it accrues by paying off the principal.
How Do I Do It?
The first thing you need to do is fill up a complete consolidation loan application. You’ll go to the student loans government website and finish the form in one sitting. It takes around half an hour to complete it. In the form, you’ll fill out the following:
- The loans you want to consolidate
- The repayment plan you want to take
Some people get into an income-driven plan which changes the amount they pay based on the income they’re currently earning. However, doing that requires you to submit another form. Make sure to double-check the information before submitting it. Then, you’ll wait for your loan servicer to confirm completion.
Is It Worth it?
A consolidation provides you with more control and a way to bounce back. Consolidation is available for people who’ve defaulted and want to fix their student loan situation. There is no credit check necessary, and the government does it for free. You don’t have to approach a different company to file for consolidation.
However, it may not be an option for everyone. The interest rate you get with the new loan will be a weighted average of the consolidated loans. A high-interest rate on one may drag everything else upward.
Ultimately, you have to weigh your options. If you’re comfortable extending your loan, then it can help you out. However, it does mean you might pay more over the loan’s life.
Take Your Time
When you’re considering consolidation, you don’t have to take action right away. Make sure to take into account the new terms and repayment you’ll get into before applying. You may even want a second opinion to make sure that you’re making the right move. Doing your due diligence will help remove any doubt when you decide to act.