By the time you graduated from your baccalaureate program, how many student loans had you accumulated? If the answer is more than one, you may have multiple loan providers and repayment schedules. Add in graduate school and more loans, and, balancing all these different payment schedules—not to mention making all those payments—might be a challenge. If that’s the case for you, you may be interested in refinancing or consolidating your student loans.
Whether to consolidate student loans is a big decision, with several factors to consider. This might include the amount of debt you have, your current and near future income and financial situation, the number and terms of separate loans you currently have, and your personal preferences, to name a few. Once you consolidate, though, there’s no going back, so it’s important to look at your options. Here’s a brief guide to some basic considerations when deciding whether or how to consolidate student loans.
Each of your student loans, particularly federal student loans, may have different repayment, deferment, and forbearance options, aimed to help you repay your student loan debt in a way that is convenient for you. But if you have multiple payments to make each month, that might add up. If your income currently and in the near future is low enough to make repayment difficult, consolidation might be an appealing option. Consolidation loans might combine any compatible loans into one payment, possibly even with a lower interest rate and lower monthly obligations. Why might it be lower? Because consolidation loans might allow you to pay off your student loans over a longer period of time, should you qualify, adjusting the minimum monthly payment accordingly.
While lower minimum monthly payments might be an attractive option, there may be drawbacks to this. That’s because the longer it takes to repay a loan, the longer there is for interest to accrue on the outstanding amount. Depending on your student loan terms, such as whether you are subject to capital interest, you might be required to pay interest on the interest that has already accrued. If you can afford to continue making sufficient monthly payments on each of your outstanding loans, you might pay less money in the long run than if you consolidated.
If you are eligible and choose to consolidate your student debt, you may be subject to new loan terms. Depending what those terms are, that might be a positive or negative. For example, if your original loans had flexible repayment options that you couldn’t get with the consolidation loan, you might lose access to that benefit. Make sure you familiarize yourself with all your benefits and options, both on your current loans and the potential consolidation loan, to make sure you’re not losing something you would rather keep. On the other hand, your consolidation loan might have new benefits that make up for the ones you lose. You might be able to consolidate under a lower fixed interest rate. If interest skyrockets, you’ll get to keep your lower rate. Of course if interest drops below your fixed rate, you might be stuck with the higher amount. As mentioned above, other potential benefits of consolidation might include lower minimum monthly payments and longer repayment periods, making repayment easier in the short term. Plus, once you’re able to do so comfortably, you might later be able to increase your payments and repay your consolidation loan faster, depending on the terms of your loan.
At the end of the day, depending on your situation, consolidation might just be the more convenient option. Reducing your student loan payments each month from several to one might be easier for you to remember, not to mention easier to budget. Even if you pay more long term, you might decide that easing up your budget in the short term is enough of a benefit to make up for the increased duration. Whether it’s a matter of how far you can stretch your paycheck, wanting to increase your savings, or just your personal preference, the convenience of a consolidation loan might be a major factor in your decision.