Should You Consolidate Your College Loans?

Should You Consolidate Your College Loans?

Learn the pros and cons of combining your college aid.

Have you taken out more than one loan to pay for your college degree? If so, you may want to think about consolidating your loans into one monthly payment.

The government offers a federal consolidation loan program that allows you to combine your federal loans. Some lenders also offer programs to consolidate all of your college aid, private loans and federal aid. But whether this is the right decision is different for each college student.

Consolidating your college financial aid offers significant benefits and drawbacks, which are explained below. Before you pursue this option, make sure you understand how altering how you pay back your college money will impact the overall cost of your college loans and the length of time you’ll be paying them back.

How Consolidating Your College Loans Works

When you choose to consolidate your existing loans, the original loans are paid off by the lender, and a new consolidation loan is created to pay for your university degree. The interest rate and terms of this new loan will vary from your earlier loans.

There are some restrictions when you consolidate your loans. If you choose a consolidated federal loan, that can only include your federal loans, not any private loans you may have. Some private lenders will consolidate both private and federal loans. While this may sound more convenient, be aware that consolidating your federal loans into a private consolidation loan means you give up your federal borrower benefits.

The government offers a variety of federal consolidation loans, so you should compare interest rates and loan terms and conditions on your federal aid as carefully as you did when you were choosing your original loans.

Benefits and Drawback of Consolidating College Loans

The primary benefit of consolidating your financial aid for college is, of course, that you can make one loan payment to one lender, rather than having to keep track of a number of payments and payment schedules. The biggest downsides? You could end up paying back more than you would have if you’d kept the individual loans, and the new loan could take longer to pay back.

Choosing whether to consolidate your college loans depends on several factors, including your college program, the amount you owe and your future income. If you’ve already paid off a large portion of your college loans, consolidation may not help you much. But if money is tight and you have the chance of getting a lower monthly payment by consolidating, you might find that managing your college financial aid is easier.

Questions to Ask Yourself About Your College Loans

  • Are the interest rates on your loans low? If not, you may find a better interest rate on a consolidated federal loan. These loans are offered with a fixed rate, so you’ll benefit in the long term when rates are low.
  • Do your loans have variable rates? Private loans, however, can have variable rates as well as additional fees or large penalties, so be sure to ask the lenders about the terms and conditions of a loan before you choose it.
  • Are you able to manage your current monthly payments? If you’re low on funds or are concerned that managing several loans is taking valuable time from your college education, a consolidation loan may be a better option for you.

Consolidating Your College Loans Tips & Tactics

  • Ask each lender about the terms, conditions, benefits and interest rates of the consolidation loans they offer, and compare those to the terms of your current financial aid for college to make sure you don’t lose any key benefits.
  • Find out what repayment plans are offered with your consolidated loan options. In many cases, you will have more flexibility with paying back these consolidated college loans than you had with your original loans, so while you may pay back more college money overall, you’ll have more time to do so.
  • Still confused about how best to manage your college financial aid? Talk to your school’s financial aid office.

People Who Read This Article Also Read:

Borrowing Basics
Borrowing Tips
10 Facts About Repaying College Loans
How to Handle Problems Repaying College Loans
Choosing a Federal Repayment Plan

See All Paying Back Your Student Loans and Managing Student Debt Articles


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