If you want to consolidate student loans, you must assess your circumstances. While federal student loan consolidation may be an ideal option for some people, others may find disadvantages in simplifying their multiple loans into one policy. Here are some pros and cons to consider before you decide to consolidate student loans:
Advantages of Consolidating Student Loans
Most pros when you consolidate student loans involve convenience.
- One Monthly Bill: When you consolidate student loans, you combine multiple student loans into one policy. If you have several federal student loans from different loan servicers, consolidating them into one loan will simplify your repayment. You will only have one policy with a single monthly bill to pay for those multiple loans.
- Longer Repayment Time: Since you will combine all your federal student loans into a single loan, you may have up to 30 years to repay everything. In addition, stretching your repayment plan for all your loans in one policy could lower your monthly payments.
- Get a Fixed Interest Rate: Consolidating student loans will give you a fixed interest rate. A fixed interest rate remains the same throughout a loan’s lifespan. Even if you have student loans with variable interest rates, which fluctuate over time, you may convert them into a fixed rate through consolidation.
- Access More Income-Driven Repayment Plans: You may qualify for the Public Service Loan Forgiveness (PSLF) Program and more income-driven repayment plan options if you consolidate student loans. These benefits are only available if you have Direct Loans.
Direct Loans are student loans you get from the William D. Ford Federal Direct Loan Program. If you have federal student loans other than Direct Loans, you may not have access to specific repayment options. However, consolidating these loans will grant access because you will consolidate student loans into a Direct Consolidation Loan.
Disadvantages of Consolidating Student Loans
The primary con when you consolidate student loans is the benefits you may lose.
- Lost Borrower Benefits: Consolidating federal student loans into a single policy may cancel certain borrower benefits associated with specific loans. Individual student loans may have interest rate discounts, refunds on your loan’s principal, or even loan cancellation benefits. Reconsider your benefits with your separate loans before deciding to consolidate student loans.
- Lost Credit: You may lose credit you earned by making qualifying payments toward PSLF or income-driven repayment plan forgiveness when you consolidate student loans.
- Accumulated Outstanding Interest: Consolidating student loans will consider any outstanding interest on your separate loans and then include them in your original Direct Consolidation Loan. So, any interest you may have had on your individual student loans would accumulate on your new loan, giving you a higher principal balance.
- More Time to Pay: The longer repayment period when you consolidate student loans may be a hassle to some borrowers. Although you could lower your monthly payments, you may end up paying more in interest than your principal balance.
Conclusion: Is Consolidating Student Loans a Good Idea?
You must assess your unique circumstances before deciding to consolidate student loans. For instance, combining your current federal student loans into a single policy may give you more time to repay the loan. At the same time, this extended repayment period may cause you to pay more in interest.
You must also consider the benefits you get from individual federal student loans. You may have discounts on specific policies, which you will lose if you consolidate student loans into one policy. Be sure to understand your current situation before applying for a Direct Consolidation Loan.
