What is Student Loan Consolidation

Student loan consolidation combines all your student loans and often lowers your monthly payment. If you spent four or more years in college, you are likely to have a number of student loans from subsidized to unsubsidized, Stafford and Perkins loans, and perhaps some privately-funded student loans as well. After graduation, you enter the repayment period and each loan requires a monthly payment. Not only can keeping track of several (or more) monthly payments be difficult, each loan’s minimum payment may become a financial burden when they are added together each month.

Consolidating your student loans is a lot like consolidating any other debt. A new loan is taken out to pay off all existing student loans so that only one monthly payment is made each month to the new lender. There are many benefits and a few disadvantages to this option so be sure to consider your options carefully as student loan consolidation is not required.

Benefits to Consolidating Your Student Loans

There are several benefits to consolidating your student loans. Loan consolidation allows you to make one monthly payment instead of making several payments to various lenders each month. This may also lower your monthly payment and make your student loan repayments more affordable. By consolidating your student loans, you may also qualify for a lower interest rate which can save you money over time.

Before consolidating your student loans, be sure to consider the following. If you consolidate your student loans during your grace period following graduation, you forfeit any remaining time of your grace period. In many cases, student loan consolidation will allow you to extend your loan repayment period from 10 years to 30 years which will decrease your monthly payments and possibly make them more affordable to you; however, you will pay more in the long run because of the amount of interest that accrues over the longer repayment period. Finally, remember that any benefits you have with an individual loan will not be valid after the loan has been consolidated.

How to Consolidate Student Loans

You can choose to consolidate your student loans through an online application or submit the student loan consolidation application through the mail. Either way, before you begin the application process, you’ll want to get organized so that you can easily answer each question. You’ll need to gather all the paper work for your current student loan or loans such as monthly and quarterly statements, and if you plan to submit the application online, you’ll need your Federal Student Aid PIN. (If you don’t have a PIN for the website, it’s easy to request one.)

Using the information you have for your current student loans, simply fill out the federal student loan consolidation application. You will also have the option to choose your repayment plan. Some of the options, such as the Income Based Repayment plan, as the name suggests, is based on your income. Not everyone qualifies for this plan, and even if you do, it may not be the best plan for you. Weigh each repayment option carefully and select the option that best suits your financial situation.

Federal Student Loan Consolidation

Federal student loan consolidation is a simply and straightforward process. Each month you probably receive statements from the Department of Education. Use these statements as well as the quarterly or annual statements you should also receive to complete the loan consolidation application. While in most cases loan consolidation offers a lower interest rate, it is not guaranteed so be sure you are paying attention to the details. Likewise, any perks you may be eligible for with your current loan or loans will be unavailable once you consolidate your loans, including a six-month repayment grace period. Be sure to complete the application with honest and accurate information. Once the federal student loan consolidation application is complete, submit the form and wait for a response. While the process is meant to be streamlined, do not be surprised if you receive a notice requesting additional information, especially if you selected an income contingent repayment plan.

Private Student Loan Consolidation

All student loans are eligible to be consolidated, and private student loan consolidation is the same process as federal student loan consolidation. In fact, you should include both types of loans on the same application if you wish to consolidate any or all of your student loans. While it is possible to find a private lender to consolidate your federal and private student loans, it is unlikely to find one that has more favorable terms than the federally-backed student loan consolidation program.