August 9, 2021

When Should I Consolidate My Student Loans?

Chipper Help

Consolidating student loans may be favorable for you as you get to focus on a single monthly payment to only one lender. However, you might be wondering, “when should I consolidate my student loans?”

If you prefer a fixed interest rate, want to reduce your monthly payment, or qualify for loan forgiveness, you will benefit from student loan consolidation. To know more about when to consolidate student loans and its corresponding pros and cons, check out the following article!

Choosing a Fixed Interest Rate

If you want a fixed interest rate, then student loan consolidation is a good option. For instance, your previous federal loans include variable interest rates. Depending on market changes, your monthly payment and interest rate will also vary. With student loan consolidation, you will pay a fixed rate until you’re able to pay them in full.

Reducing Monthly Payments

You can also consolidate your student loans if you want to reduce your monthly payments. If the current payment schemes are a bit hard for you, consolidation will be of great help. Instead of a 10-year repayment plan, you can have it extended for a maximum of 30 years, thus lowering your monthly payment. While the interest becomes higher, you’ll have more time to plan your finances and quickly get back on track.

Avoiding Default

A single missed payment can already affect your credit score. Since student loan consolidation lets you get new payment terms and reduced monthly payments, you can avoid default. As a result, you won’t suffer from a bad credit score.

Qualifying for IDR Plans and Loan Forgiveness

If you took federal loans from Perkin Loans or Federal Family Education, you do not qualify for income-driven repayment (IDR) plans and Public Service Loan Forgiveness (PSLF). However, consolidating your student loans makes them part of the Direct Loan Program. Thus, you can qualify for IDR plans and loan forgiveness.

Disadvantages of Student Loan Consolidation

While consolidating student loans comes with advantages, you also need to consider the following disadvantages:

  • Losing borrower benefits: You might lose specific benefits, like principal rebates, interest rate discounts, and grace periods.
  • Paying a higher interest rate: Given that consolidation makes your repayment period longer, you will most probably pay higher interest in the long run. Also, the weighted average interest rate of your older loans rounded up to one-eighth of one percent will be your new interest rate.
  • Losing IDR plan and PSLF credits: With student loan consolidation, your previous payments for IDR and PSLF will no longer be counted.
  • Failing to consolidate private loan consolidation: You can’t consolidate private student loans. So, they remain separate from your federal loans. While some private lenders let you consolidate including federal loans, the interest rates are relatively higher.

Final Thoughts

The answer to your question “when should I consolidate my student loans” depends on your circumstances and preferences. If you want more manageable repayment terms, get a fixed interest rate instead of a variable interest rate, avoid default, or become eligible for IDR plans and PSLF, you can apply for student loan consolidation. However, consider the disadvantages too to determine whether it’s the right step for you. For more relevant information about student loans, get started here!

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