Consolidation Loans combine several student or parent loans into one bigger loan from a single lender, which is then used to pay off the balances on the other loans. They also provide an opportunity for alternative repayment plans, making monthly payments more manageable.
Consolidation loans are available for most federal loans, including Stafford, PLUS, Perkins, Health Professional Student Loans, Guaranteed Student Loans and Direct Loans. Some lenders offer private consolidation loans for private education loans as well.
No matter what type of loan you take out, it comes with its own interest rate. It can seem like a riddle when trying to keep track of your loans and payments.
When it comes to loans, consolidation can be a great option. In consolidating your loans, it can become easier to handle because, essentially, your multiple loans will become one and payment will become simplified into one monthly payment.
Before you decide to consolidate your loans, however, financial experts remind that there are some factors you should be sure to think about.
What Type of Loans You Have
Your Loan Benefits
Believe it or not, you have more than just your balance to consider what types of loans you've taken out. For example, whether or not you've taken out the same type or varied types can make a difference in consolidation.
If you're like most borrowers, you taken out a mix of both subsidized and unsubsidized Direct Loans. You'll need to check with your loan provider to find the rates of each of your loans and whether or not the loans have fixed rates. If you're unsure of your loan servicer, it's whoever sends your monthly statements.
Assuming you decide to consolidate your loans, remember that a consolidated payment is an average of all your loans being consolidated.
What you need to consider next is, whether or not that average will consolidation will cause you to pay more interest over time. Combining lower and higher interest rates could cause you to do so.
Savings Aren't Guaranteed
Again, consider your type of loans and the benefits that each offer. For example, some types of loans offer more loan forgiveness or flexible payment options than others. Combining those with other types of loans can limit or even eliminate such benefits and options. Inversely, consolidation may help you gain access to such forgiveness options.
Typically, you can consolidate directly through your current loan servicer or Department of Education, but there are other 3rd party lenders who can also provide this service. You can find some of these other options at ELM select.
While consolidation can help confusion by switching multiple loans into one, it shouldn't be the only reason you decide to consolidate. If you're able to keep your payments on track, consolidation is likely unnecessary.
If you're merely having difficulty keeping track of your separate loan payments, not consider automatic debit payments as an alternative to consolidation.
However, if you're struggling to make payments, you will likely see relief in consolidation. You will likely end up paying more in the long run, but it's worth it if you've been defaulting on your payments.
Under no circumstances pay a fee in advance to get a federal education loan or consolidate your federal education loans. There are no fees to consolidate your loans. While other federal education loans, such as the Stafford and PLUS loans, may charge some fees, the fees are always deducted from the disbursement check. There is never an upfront fee. If someone wants you to pay an upfront fee, chances are that is it an example of an advance fee loan scam.