Where should i go to consolidate my student loans? Both Federal and Private?

Question

Where should i go to consolidate my student loans? Both Federal and Private?

Answer 1

A couple of things to keep in mind:

Private loans and federal student loans can not be consolidated together. If you're determined to consolidate, you'll need two separate consolidation loans.

The other thing is this - consolidation has a "s**y" allure - many people become interested in consolidation loans because they are intrigued by the idea of having just one payment. That sounds great, but like most other things in life, the "convenience" comes at a cost.

First of all, many consolidation loans are designed to "lower your monthly payment" and are sold on the basis that you can combine all your loans and pay less than if you paid them each separately.

Well, yes, you can. But to make that possible, your consolidation loan will stretch your repayment period over a longer period of time. The longer it takes you to pay back a loan, the more interest you'll pay - so - if your consolidation loan promises you lower monthly payments, then the lender is doing that by lengthening your repayment period - and you will pay a lot more interest. That's not necessarily a good idea.

When you take out a consolidation loan, all of your old loans are "torn up", and replaced by a new loan. The new loan MAY have a higher interest rate than your existing loans (which will cost you more money), and the interest rate on the new loan may be variable, rather than fixed. That's a particular concern if you try to consolidate federal student loans, which have fixed interest rates that are as low as anything you're going to find on the private market.

Finally - keep in mind that your existing loans have certain borrower benefits - even if you're not taking advantage of them at the moment, they're nice to have in reserve, and you could well lose them if you consolidate.

The most important of these benefits - and I'm referring here to your Stafford and/or Perkins loans - is the right to request a deferment or forbearance if you experience financial hardship. If you lose your job, or you become sick, or you need to take time off from work because you are caring for a baby, you can apply to your federal loan lender for a postponement of payments for several months. You will probably lose this option if you consolidate.

Consolidation is a valuable financial resource for some borrowers, but you absolutely must be certain to educate yourself about all of the effects that consolidation will have on your debt. Then you can weigh the advantages of having "a single payment" against the potential costs of losing borrower benefits and paying a lot more for the loan (for a lot longer).

If you want to find out more about consolidating your federal loans, you should definitely start out with the website that I've linked to below - this is the Department of Education's consolidation program.