What is consolidation?
Consolidation is just what it sounds like: combining your multiple student loans into one large loan. The process of consolidation also stretches your repayment term from the standard ten years to a maximum of thirty years. You can only consolidate your loans once, unless you’ve recently taken out new loans that you’d like to bundle with your old ones. The consolidation process generally takes 30-90 days to complete.
What’s the difference between consolidating federal and private loans?
The primary difference between consolidating federal and private loans is that federal loans have a set interest rate determined by federal law. Federal law also determines the payback period. Private loans offer variable interest rates, and can carry with them various fees, depending upon the lender.
Why would I consolidate?
There are a couple of benefits to consolidation. For one thing, it makes things easier logistically. Rather than making multiple payments on multiple loans, you’re only writing one check each month. Another benefit: stretching out your loan payments over time reduces your monthly payment. Consolidating private loans can also “lock in” a low interest rate. Finally, consolidation resets the clock on any deferments. For example, if you’ve already maxed out deferments on unconsolidated loans, consolidating will give you a fresh start.
What are the drawbacks?
Stretching out your payments over more years inevitably results in paying more interest. Also, when you consolidate with a new lending institution, you may lose any benefits you’ve accrued with your prior institution, such as reduced interest rates for timely payments. Consolidating can also prevent loan forgiveness. If you’re considering consolidating, carefully investigate the particulars surrounding your lending institution.
When should I consolidate?
You can’t consolidate while you’re still enrolled in the program for which you borrowed, but consolidating private loans immediately following completion - during the “grace period” - can help lock in a very low interest rate. If you missed the grace period, keep your eyes out each July 1, when the new student loan interest rate is announced. That will help you identify when the interest rates are lowest. You can also consolidate your loans with your partner’s loans if you marry. However, if you divorce, you’d still be jointly responsible for the loan debt. Also, you would not be able to qualify for an in-school deferment unless both of you return to school.