Pros And Cons To Consolidating Student Loans

Pros

Consolidation is a great way to save money every month, since interest rates can vary so much from company to company, and even at different times of year, depending on the type of loan. You may not get any tax benefit if you have a federal student loan, but many states offer their own income-based tax breaks. Your state may also allow you to deduct certain expenses related to your education. While consolidation loans do cost a bit more than standard loans, they can offer lower monthly payments at fixed interest rates, and make borrowing easier.

Cons

Student loans are tricky, since they’re often buried inside your credit history. If you don’t pay them off in full each month, you’ll likely incur additional fees. Also, consolidating your debt could reduce your total amount of student loan debt, but it won’t change what you owe.

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Pros And Cons To Consolidating Student Loans

Consolidate student loans

Many people don’t realize they may qualify for consolidation programs

Consolidation programs can save you money

You might not know how much interest you’re paying

Pros

Consolidating your student loans could lower your monthly payment

If you consolidate your federal student loans while still in school, you’ll have fewer payments to make after graduation

There’s no prepayment penalty for consolidating

You may get a lower rate if you pay off your loan over time than you would if you paid the full balance each month

Your credit score won’t suffer if you consolidate your loans

You should never consolidate student loans without first talking to your financial advisor

Here are some things to consider before consolidating your federal student loans.

Are you eligible?

If you’ve consolidated student loans in the past, you may be able to apply again. So long as you didn’t default on your previous loans, you may have been approved for a consolidation program even if you already had them.

Pros And Cons To Consolidating Student Loans

Pros

Consolidation means that all of your student loans (Federal and Private) become one debt. That way, you only have to make one payment per month. It’s great if you’re graduating from college right now or soon! You don’t want to wait until after graduation to consolidate your loans, though. If you do, you might not get a good interest rate. Also, consolidation doesn’t mean that you won’t have to pay any fees–some companies charge fees to consolidate loans. The best thing about consolidating your loans is that you’ll save money each month.

Cons

You’ll lose some flexibility and control over how much you want to borrow. For example, if you decide to take out a $10,000 loan and then decide to use the extra money to buy a car, you can’t just take out another loan for the same amount. But, if you consolidated your loans, it wouldn’t matter because they would still be combined into one balance.

How Much Money Can I Save?

The average graduate student takes out roughly $30,000 in student loans. That means that on average, you could potentially save $750 each year by consolidating your student loans. So, if you were paying off a $10,000 federal loan at 6% interest, you could save thousands in interest payments and hundreds each month. That’s a lot of money! Plus, you will no longer need to worry about making minimum monthly payments.

If you decide to go through a private lender instead of the government, you’ll likely get a lower interest rate than what the government offers. Again, though, remember that whatever interest rate you end up getting has nothing to do with how much you actually owe.

What Are My Other Options?

If you decide to consolidate your loans, you should first look into paying them down. Remember how we said earlier that you could save lots of money by combining all of your loans into one big number? Well, the same principle applies! By paying down your loans, you can reduce your total balance. A few ways to help you pay down your debt include taking out small additional loans to cover the cost of tuition, working while enrolled in school, and cutting unnecessary expenses.

But, even if you aren’t able to pay down your debt entirely, you may be eligible for a deferment or forbearance. Deferments allow you to stop making payments for a certain period of time or until your situation changes. Forbearances let you temporarily suspend your obligations until the end of the grace period.

In either case, you should ask yourself whether or not you really need to borrow the money. Is the degree worth it? Will your career require a high level of education?

Pros And Cons To Consolidating Student Loans

Consolidation

Pros: You’ll save money & time.

Cons: You may lose some student loan forgiveness.

There’s no doubt consolidating your federal student loans is a good idea. But how much should you consolidate? How does it work? And what should you keep in mind before making any moves? Here’s everything you need to know about the pros and cons of consolidation.

What Is Debt Consolidation?

It’s a way to pay off several different types of debt with one monthly payment. If you owe $10,000 in credit card debt, $20,000 in private student loans, and $25,000 in federal Stafford loans, you could use a debt-consolidation loan to combine them into one manageable payment. Instead of paying $150 each month, you would only have to make one payment per month, or pay $300 less per year.

Debt consolidation means that you get rid of many small debts and spread out payments over a longer period of time. However, you will not qualify for certain financial aid programs if you’re already using a federally subsidized education program. In order to qualify for those programs, you have to apply separately to each lender.

Pros And Cons Of Consolidating Your Federal Student Loans

The pros of consolidating your federal student loan debt are obvious: You’ll save money and time. But you might lose some student loan forgiveness, depending on your repayment plan.

If you choose a standard 10-year repayment plan, you won’t receive income-based repayment (IBR) eligibility after you graduate from school. So if you’ve been planning on taking advantage of IBR, you might want to think twice before consolidating your loans. You’ll still be able to take advantage of IBR later on, just not while you’re paying down your consolidated loan balance.

However, if you do consolidate your loans and choose a 15-year repayment plan, then you will become eligible for a 0% interest rate until May 2018. That’s right — 0%. As long as you continue making your payments on time, you’ll be treated the same as someone who hasn’t started repaying their loans yet.

You’ll also be able to earn extra points toward your future rewards cards, including the new Chase Ink Plus Card. Your points can help you offset your bills or put towards travel or dining expenses.

On top of that, you’ll still be able to access the same financial assistance programs if you have a hardship (like medical emergencies). After all, you’ve already paid back a portion of your loan, so why not let the government cover the rest?

In addition, you could save even more money by refinancing your existing loans. A recent survey by LendEDU showed that borrowers who refinance their loans at lower rates can save anywhere between $200 and $800 per year.

Pros And Cons To Consolidating Student Loans

Pros

Consolidation allows you to take out just one loan instead of many. You’ll have fewer monthly payments and interest rates, which means less money over time if you don’t pay off the debt right away.

If you’re not already paying off your loans, consolidation may help you save some money now.

It can save you money in the long term. The average borrower spends about $60,000 in interest while paying off their loans. A 10% increase in your payment could mean $600 extra per month saved.

If your credit score isn’t great, consolidating your student loans might help improve your credit rating. You’ll need good credit to get the best rate, but it can still benefit you in the future.

It’s possible to consolidate federal and private loans at once.

Your lender won’t ask you questions about where you plan to use your consolidated loan—you can focus entirely on your repayment goals.

Depending on how much you owe, you may be able to reduce your interest rate.

If you make a mistake in your paperwork or miss a payment, it doesn’t affect your consolidation.

Consolidation can help you avoid default or bankruptcy.

It’s an option if you didn’t graduate college yet and want to postpone payments until after graduation.

You can only consolidate federal loans, so you don’t lose any benefits if you decide to switch to a private loan.

You can consolidate private loans with other private lenders, even if they aren’t U.S. based.

You can always refinance your existing loans later.

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