Home Financial Aid Tips Consolidating Student Loans: Is This the Right Choice for You?
Consolidating Student Loans: Is This the Right Choice for You?

Consolidating Student Loans: Is This the Right Choice for You?

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consolidating-student-loansMaintaining multiple student loan payments can be quite difficult and frustrating. When it comes to making payment on multiple federal student loans, it may be easier to consolidate them. A direct consolidation loan allows you to combine multiple federal student loans into one loan. This can simplify your multiple monthly payments into one.

Consolidating student loans has some pros and cons. Studentaid.gov mentions a few benefits such as loan consolidation having the ability to greatly simplify loan repayment by centralizing your loans to one bill and it can lower monthly payments by giving you up to 30 years to repay your loans. There may also be new opportunities that become available with the consolidation, such as alternative repayment plans and switching the variable interest rate loans to a fixed interest rate. The cons of consolidating your student loans consist of losing borrower benefits and paying more in interest by extending the repayment period.

There are also some important factors you may want to consider which can assist with determining if consolidation is the right choice for you. The first step is figuring out what type of loans you have borrowed to determine if they are eligible for consolidation. Most federal student loans, such as Direct, Stafford, and Perkins loans, are eligible for consolidation. However, private education loans are not eligible for consolidation. Second, it is important to consider the type of benefits each of your loans offer. There are borrower benefits that can significantly reduce the cost of repaying your loans. These benefits include interest rate discounts, principal rebates, or some loan cancellation benefits. Some of these benefits can be lost if you consolidate your loans. Third, weigh the pros and cons of consolidating your student loans to determine if this is the best option for you. Consolidation will prove to be beneficial if you are struggling to make multiple payments and need the relief of lowering your monthly payment amount. However, if you are not struggling to make your monthly payments, there may not be a need to consolidate your loans.

If you are considering consolidation, here are some tips provided by Studentaid.gov on the requirements to qualify for a Direct Consolidation Loan:

  • You must have at least one Direct Loan or FFEL Program loan that is in a grace period or in repayment.
  • If you want to consolidate a defaulted loan, you must either make satisfactory repayment arrangements on the loan with your current loan servicer before you consolidate, or you must agree to repay your new Direct Consolidation Loan under the
    • Income-Based Repayment Plan,
    • Pay As You Earn Repayment Plan, or
    • Income-Contingent Repayment Plan.
  • Generally, you cannot consolidate an existing consolidation loan again unless you include an additional Direct Loan or FFEL Program loan in the consolidation. However, under certain circumstances you may reconsolidate an existing FFEL Consolidation Loan without including any additional loans.

There are no application fees for a Direct Consolidation Loan, and you may prepay your loan at any time without penalty.

If you have further questions regarding Direct Consolidation Loan or would like to apply please visit StudentLoans.gov .

By Shalena Gonzales
Financial Aid Specialist, American Public University

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