Consolidating Student Loans

Loan consolidation simply means paying off or refinancing multiple loans with one new loan. In essence, you pay off multiple loans (called "underlying loans") and get a new loan in return. Please note that loan consolidation is not the same thing as combining all your loans with one lender.

Combining loans means asking one lender to buy any loans you have with another lender in an attempt to get all your loans serviced in one place. Currently, the two major advantages of consolidating are: 1) Locking in current rates for better budgeting; and 2) Lowering monthly payments.

With your student loan consolidation you can take advantage of fixed interest rates, lower monthly payments, and a single payment each month. You can also get incentives for payments and receive a new or renew a deferred payment. Extending the repayment period increases your total interest payments because you'll be making smaller payments over a longer period.

There are no prepayment penalties for accelerating the payback of your consolidation loan. There are two reasons why monthly payments can be greatly reduced after consolidating student loans. The first is that variable rate loans are replaced by a single fixed interest loan. The other reason consolidating student loans can have such a big impact on reducing the monthly payment is that the repayment period can be extended past the standard 10 year repayment term if you choose this option.

Private and federal loans, along with scholarships, can be combined to fund your education. However, it's important that when it comes time to consolidate student loans, you do not mix the two types together.

You should always consolidate your federal loans first, and then separately consolidate private student loan debt. There are certain cases where you can consolidate your federal student loans again. Some of those cases are listed below. You can consolidate again if:

You have a previous consolidation, but have since taken out more Federal student loans
You have two separate consolidations that you want to merge together into one payment.

Student loan consolidation with overdue or unfulfilled repayments may still be considered for consolidation if a satisfactory repayment plan has been agreed with the bank or other creditor.

Married couples may also consolidate their student loans together if they agree to repay the student loan regardless of how much each of them individually owed beforehand. If they change their marital status in the future, that will not change their debt situation on the student loan consolidation.

While student loan consolidation is a no-brainer, choosing a lender to consolidate with does require some research and investigation.

Because federal consolidation is mandated by the government, all lenders are required to offer the same consolidation rates and repayment options as those set by the federal government. However, the difference lies in the benefits and service offered by the lender and the lender’s track record.

Eventually, you should review all the advantages and disadvantages of a student loan consolidation program, comparing the cost of repayment with the cost of repaying a single student loan, before choosing the student loan options.

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