Loan consolidation allows you to combine one or more existing student loans into a single new loan. Consolidation may be the right option for you if:
- Your student loan debt is significant.
- You have more than one type of student loan.
- You're having trouble making the minimum monthly payments on your multiple loans.
Realize there are advantages and disadvantages to loan consolidation:
|Lower monthly payments
Consolidation may reduce your monthly payments by as much as 50% or more.
|Longer repayment schedule
Consolidation may extend how long you have to pay off student loans, sometimes up to 30 years.
|Fixed interest rate
Your monthly payment is always the same.
|More interest to pay
You may pay more interest since you'll be making payments for a longer period of time. Plus, your new interest rate is higher than the average interest rate for your multiple loans.
|One bill, one payment
Managing one loan with one monthly payment is more convenient than managing multiple loans.
|Loss of loan incentives
When you combine multiple loans into one, you may lose any incentive programs on the individual loans that you combined.
Do your homework. If you can manage a smaller payment or if you're experiencing a financial hardship, you may want to consider changing your repayment plan before you consider consolidation.
- Not all loans qualify for loan consolidation, so check to see if this is an option for you.
- Once you consolidate, you can re-consolidate only if you have an eligible student loan that was not included in the original consolidation.
Test Your Knowledge
You consolidate $30,000 in loan debt at 6.875% interest. Which repayment plan is better for your wallet?
- 10-year repayment
- 20-year repayment
1. 10-year repayment
Although the monthly payment may be lower with 20-year repayment, you'll pay more than double in interest:
- Monthly payment = $346.40
- Total amount paid = $41,568.00
- Total interest paid = $11,568.00
- Monthly payment = $230.35
- Total amount paid = $55,284.00
- Total interest paid = $25,284.00