August 4, 2021

Should I Consolidate My Federal Student Loans?


You must assess your unique circumstances if you want to consolidate federal student loans. Federal student loan consolidation through a Direct Consolidation Loan may be convenient for some, but others may lose certain advantages they have from separate federal student loans.

Consider the following benefits and disadvantages before you consolidate federal student loans.

Pros of Federal Student Loan Consolidation

Convenience is the primary advantage you get by getting a Direct Consolidation Loan.

  • One monthly payment: Combining your federal student loans into one policy saves you the time and effort of making multiple payments on several loans.
  • Fixed interest rate: Federal student loan consolidation gives you a fixed interest rate, meaning your interest rate will remain the same throughout your loan policy’s term. You may also consolidate federal student loans with variable interest rates into your new policy with a fixed interest rate.
  • No minimum or maximum: There is no limit to the number of federal student loans you can consolidate.
  • Longer repayment time: You may extend your repayment plan to up to 30 years by getting a Direct Consolidation Loan, giving you more time to budget your loan dues.
  • Lower monthly payments: You may get more affordable monthly payments by extending your repayments.
  • Avoid loan default: With a new repayment schedule and potentially lower monthly payments, you have better chances of avoiding loan default. Defaulted loans affect your credit score, which determines your capacity to apply for other loans in the future.
  • More repayment plans: You get access to multiple income-driven repayment plans by applying for a Direct Consolidation Loan. As a loan under the Federal Direct Loan Program, Direct Consolidation Loans make you qualified for the Public Service Loan Forgiveness (PSLF) Program.

Cons of Federal Student Loan Consolidation

Losing the borrower benefits associated with separate federal student loans is the primary disadvantage of getting a Direct Consolidation Loan.

  • Lost benefits: Some individual federal student loans have specific benefits attached. Once you consolidate those federal student loans into a single policy, you essentially cancel the borrower benefits you get from them. Some benefits include interest rate discounts, principal refunds, and loan cancellation privileges.
  • Lost credit: Consolidating your federal student loans into a single policy may cancel any credit you earned when you made qualifying payments towards the PSLF Program or income-driven repayment plan forgiveness.
  • Outstanding interest: A Direct Consolidation Loan will accumulate any outstanding interest on your separate loans, meaning you may have to pay a higher principal balance.
  • Longer repayment time: Some borrowers may find the longer repayment period a disadvantage. Having more time to pay means you must set a budget for student loans for an extended period. In addition, you may end up paying more interest fees than you initially did on your principal balance, even if you have lower monthly payments.

Conclusion: Should I Consolidate My Federal Student Loans?

Assess your unique circumstances before getting a Direct Consolidation Loan. Consolidating your federal student loans have pros and cons that may work in another person’s favor but are incompatible with your situation.

For example, combining your federal student loans into one policy may give you more time to repay. At the same time, you may have to pay more in interest than your original principal loan because of the extended repayment period.

Individual federal student loans also have unique benefits attached to them. Be sure to review your federal student loans and the benefits you receive from them before deciding to consolidate federal student loans into one Direct Consolidation Loan.

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