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Is Student Loan Consolidation Right For You?

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Student loan balances recently surpassed credit card debt for the first time in history, with young adults graduating with an average of $24,000 in loans. Under so much financial pressure, some may consider loan consolidation. Before taking that step, however, it’s important to weigh the pros and cons.

Pros
1. Consolidation allows you to lock your loans into one low rate that will not fluctuate over the years.
2. You can manage your loans more easily with one monthly payment to one lender.
3. Loan consolidation may help boost your credit score by lowering the number of open accounts in your name.
4. You may receive favorable rates if you meet certain conditions, such as making on-time payments for a pre-determined amount of time.

Cons
1. Consolidation loans may extend your repayment period to between 10 and 30 years, meaning you will pay more in interest over the life of your loan.
2. Qualifying for a consolidation loan can be difficult and you may need to meet certain balance and lending requirements to be eligible.
3. You may miss out on other more affordable repayment options. Government programs, volunteer organizations and public service employers may provide forgiveness plans or repay a portion of your debt in exchange for your services.

You have a number of student loan repayment options, so make sure you do your research and understand the pros and cons of each choice before you make a decision.

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  • AlfinaHawaii

    It will be paid off with my Life Insurance proceed… there is no winning in this Student Loan scenario.

  • http://www.PGPresents.com Paul S. Garrard

    Thank you for this article, but with all due respect, some of the information is misleading and incomplete.

    The majority of borrowers are NOT able to lock in low rates, unless they started borrowing prior to July 1, 2006, when interest rates on some federal student loans (such as Federal Stafford) were variable (these rates now are quite low, and they reset every July 1). The rates on new loans disbursed on or after July 1, 2006, such as Federal Stafford Loans, have been fixed at 6.8% (and higher for PLUS Loans, 7.9% with Direct PLUS and 8.5% for the former FFELP PLUS Loans). The rate has dropped on new Subsidized Stafford Loans the past 5 years, but only for undergraduates and only on Subsidized Staffords, not the companion Unsubsidized Stafford, and new Stafford Loans will carry a 6.8% rate this next year for all borrowers, including undergraduates.

    In truth, the majority of borrowers who consolidate lock in a rate higher than what they already have, as the weighted rate is rounded up an eighth of a percentage point and then locked for the life of the loan.

    In general, qualifying for a federal consolidation loan (available only directly from the federal government) is easy, though more than a few would offer that the actual consolidation process is anything but, and the process routinely takes 60-90 days (this based on information from the Department of Education who runs the program).

    The third con listed is a bit misleading, as the Public Service Loan Forgiveness (PSLF) program most certainly applies to eligible borrowers who consolidate. In fact, more than a few borrowers are consolidating into the Direct Consolidation Loan program for the sole purpose of converting their FFELP Loans (Stafford, Grad PLUS, Federal Consolidation from private lenders) into a Direct Loan (only Direct Loans are eligible for PSLF).

    Respectfully submitted,

    Paul S. Garrard

  • Yomar

    Now I’m confused! Some say consolidation may lead to loose the Public Service Loan Forgiveness and some say that consolidation does not affect the foegiveness program. This article needs to updated! What is the correct information? Does consolidation of federal student loans take you out from PSFL elegibility?

  • government student grants for college

    confused too. Which is which? Currently im still paying for my student loan (48K)
    And as far as I know Student loan debt is much harder to discharge through bankruptcy than other types of debt, and the government can sometimes garnish your wages if you default on your federal student loans.

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