Having several loan accounts can be overwhelming and sometimes it leaves you with the question, “Should I consolidate my student loans?”
There are both benefits and risks involved in consolidating your student loans.
However, depending on your situation and goals, you can find different ways to manage both your private and federal student loan consolidation.
Should I Consolidate My Student Loans? | Pros and Cons
Debt Consolidation Programs
There are several ways to consolidate a student loan, but you should know that private and federal loans have different processes when it comes to consolidation.
When consolidating federal loans, the government combines all your federally acquired loans into a Direct Loan Consolidation.
On the other hand, in consolidating private student loans, you need to consult with a private lender.
Advantages
1. Convenience
For those individuals having more than one loan account, convenience is the greatest benefit when you consolidate your loans.
A loan consolidation’s main purpose is to combine every account into one so you will get to pay one single lender every month.
It simplifies the process of managing your finances, and makes it easier for you to track your monthly payments.
2. Lowers Your Monthly Amortization
When you consolidate your loans, lenders usually extend your repayment period which gives you lower monthly installments.
In fact, when you consolidate through a Direct Consolidation Loan program, it allows you to extend your repayment period for up to 30 years.
This could be very helpful when you have just started working and having trouble paying your monthly student loan bills.
3. Multiple Repayment Plan Options
Consolidating your federal student loans gives you the benefit of availing several repayment plans such as income-driven repayment plan, Pay as You Earn (PAYE) and Public Service Loan Forgiveness.
The first two have generally the same concept where the government reduces your monthly installment by extending the repayment period based on your earning situation.
When the repayment period is up, any balance on your loan account can be forgiven depending on your eligibility.
4. Loan Discount
Some banks and private lenders encourage loan holders to consolidate their loans by offering a discount.
In most cases, this is done by reducing .25% interest rate after 36 months of continued on-time monthly payment.
Disadvantages
1. You May Lose Some Benefits
When you decide to consolidate your loan accounts, you agree to the forfeiture of each and every accounts’ term including your benefits as a borrower.
These benefits include principal rebates, interest rate discounts, deferment, or even the loan forgiveness benefit.
2. Possibility of Paying More Interests Over Time
While it is true that loan consolidation allows you to reduce payment by extending its term, it also gives a downside effect.
By paying longer, you might actually be paying more in interest.
This is especially true since the government stopped issuing student loans with variable terms.
Is it your first time to avail of a student loan? Watch this video by Bank of America to learn about different repayment options:
“Should I consolidate my student loans or continue making individual payments for each of my loans?”
Before you answer this question, consider assessing your situation and weighing your options.
This repayment plan certainly can help you in some way but it is worth looking to know whether this action will bring you better benefits in the future or not.
Do you think consolidating your student loans is worth considering? Share your thoughts with us in the comments section below.
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