Are you tired of remembering different due dates? Well, you are not alone.
Let’s be real, having multiple federal student loans is a headache, and managing to remember and pay each one of them can be overwhelming. That is when student loan consolidation comes into play. A student loan consolidation solves this by combining all your federal student loans into one. That means one lender, one interest rate, and one monthly payment.
Student loan consolidation is basically about turning your messy pile of student loans into one single, clean, and manageable loan. The interest rate that you will be paying is often calculated as the weighted average of all your consolidated loans. It is then rounded up to the nearest one-eighth of a percentage of your loan.
Benefits Of Consolidating Your Student Loans:
No doubt, consolidating your student federal loans is one of the best choices you can make. However, its advantages vary depending on what your actual situation is.
1. Simplified Payments:
Who likes to get a headache of paying different amounts to multiple lenders, on different due dates? Exactly, no one!
Instead of keeping track of every single different payment, all you need to do is consolidate your federal loans. And, boom! You only have to pay one single monthly bill. Consolidating your student loans not only makes managing your finances easier but also reduces the chance of missing payments.
2. Access To Income-Driven Repayment Plans:
Some of the older federal loans, like the FFEL (Federal Family Education Loan) Program, no longer qualify for repayment benefits. They no longer qualify for income-driven repayment (IDR) plans unless they are consolidated.
Consolidating your student federal loans will not only provide you with access to all the modern-day plans. But also to other plans that base payments on your income and family size.
3. Renewed Eligibility For Forgiveness Programs:
Some of the forgiveness programs, like Public Service Loan Forgiveness and Teacher Loan Forgiveness, require specific types of federal loans. However, if you consolidate all your loans, you might be able to qualify, only if you follow all the program rules.
4. Fixed Interest Rates:
Once you have consolidated all your student federal loans, you have a fixed interest rate that you will need to pay every month. That means you don’t have to worry whether your payments are fluctuating over time.
5. Potential To Lower Payments:
When you have consolidated loans, your repayment term usually gets extended, and it can be as long as 30 years. It all depends on how much balance your bank account has. This way, paying monthly payments becomes quite easy, manageable, and affordable. However, this might mean that now you will need to pay more interest overall.
Drawbacks Of Consolidating Your Student Loans:
While consolidation of loans comes with multiple benefits, it is not always considered the best choice. Let’s know why:
1. Higher Interest Rates Over Time:
When you have consolidated all your loans, you might notice that your repayment term makes your monthly payment quite smaller. However, if you see the bigger picture, you will notice that it will drain out the total interest paid in the long run.
2. Loss Of Certain Borrower Benefits:
Some federal loans come with their own set of benefits and unique perks. It can be anything from interest rate discounts to cancellation benefits, which you might lose if you consolidate all your federal loans.
3. Resetting Forgiveness Timelines:
Consolidating your loans may reset the clock on when you qualify for payments, especially when you’re working toward PSLF or Teacher Loan Forgiveness. Which in turn could delay your repayment forgiveness by quite a few years.
4. No Lower Interest Rates:
Unlike refinancing, consolidation doesn’t reduce your overall interest rate. All it does is simply average them.
Eligibility for Loan Consolidation:
Not every loan you owe is eligible for loan consolidation. However, you can consolidate most of your federal student loans, including the following:
- Direct Subsidized Loans
- Direct Unsubsidized Loans
- Federal Perkins Loans
- FFEL Program Loans
- PLUS Loans from the Direct or FFEL Program
However, private student loans are not eligible for loan consolidation via federal loan consolidation programs. So, if you have a private loan and are planning to consolidate with federal ones, it won’t be possible. The only option you have is to refinance your loans with a private lender.
How To Consolidate Your Student Loan: Step-By-Step Guide:
1. Decide whether consolidation of your loans is the right choice:
Before you apply for your federal student loan consolidation, make sure you have weighed all the pros and cons. Make sure to consider what your loan types are, forgiveness goals, repayment plan eligibility, and long-term financial outlook.
2. Apply Online Through StudentAid.gov:
Go to the official Federal Student Aid website (studentaid.gov) and complete the Direct Consolidation Loan Application. The entire process is absolutely free, but be aware of the third-party companies that might charge you for consolidation assistance.
3. Choose Which Loans To Consolidate:
It’s your choice, you can choose which loans you want to consolidate. You can consolidate all eligible loans or select only specific ones. For example, you might leave out loans that are close to forgiveness.
4. Pick A Repayment Plan:
In this step, you will need to choose from the available plans– including standards, graduated, extended, or Income-Driven Repayment Options. This decision will not only impact your monthly payment but also total interest costs.
5. Submit And Wait For Processing:
Make sure to double-check all your selections, read all the terms, and then submit your application. This entire process will typically take 30-90 days. During this process, you can continue making your regular payments on your existing loans until the consolidation is complete.
Conclusion:
Consolidating your loans is a wise choice to simplify repayment and unlock access to valuable federal advantages. While it provides ease to your financial stress, it is not always the best option for everyone. Assess what your goals are, repayment history, and forgiveness options carefully before consolidating. Make informed decisions to secure a more manageable financial future.