Cons of Student Loan ConsolidationPay More Interest Over Time. If you consolidate and extend the term of the loan, you could pay much more in interest. Combining multiple student loans into one loan with one monthly bill can help simplify repayment. However, consolidation is not the best option for everyone, especially since it cannot be undone.
Here are the Pros and Cons of Consolidating Student Loans. You can consolidate any federal loan you have after you graduate into a single federal direct consolidation loan. You can also consolidate privately by refinancing student loans. It means you can consolidate your private and federal loans with a private bank, credit union, or online lender.
Refinancing is an option if you have a credit score of at least 600 and a stable income, and you are unlikely to need federal loan safeguards, such as income-based repayment and loan forgiveness. If you're struggling to make payments on your PLUS Parent Loans, consolidating into a new federal direct loan is the key to accessing an income-dependent repayment plan, the only income-driven plan offered to parent borrowers. This plan limits your payments to 20% of your discretionary income or the amount of your fixed monthly payments over a 12-year loan term, whichever is lower. When you first applied for a federal student loan, you couldn't choose the loan servicer.
They are private companies hired by the government to administer their loans. But if you're not satisfied with your servicer and want to consolidate your federal loans, you can choose one of nine servicers to manage your new Direct Loan Program in the future. Consolidating your federal loans is a strategic step to help you manage your debt. If the repayment term is extended, your monthly payment will be lower, but you will pay more interest over time.
If you consolidate with the federal government, your new interest rate will be the weighted average of the interest rates on your federal loans, rounded to the next eighth of the percentage point. Federal loans often allow for a number of deferment and deferral options in case you lose your job or experience other financial hardship. They also offer income-based repayment plans and loan forgiveness. Consolidating with a private loan with refinancing could mean that you will lose those protections and opportunities under the terms of the new loan.
Then compare how much you pay now to what you'll pay if you consolidate. When you know exactly what you're getting into, you're much more likely to make the best call for you and your checking account. Use a consolidation calculator to find out what your payments would be by consolidating with the federal government or refinancing with a private company. Both federal and private consolidation can help you address your debt, but the two are different.
In addition, each strategy has its own pros and cons. Find out the pros and cons of consolidating student loans and how to choose which one is best for you. But is debt consolidation a good option for you? On the positive side, debt consolidation usually allows you to lower your interest rate and get a reduced monthly payment amount. On the downside, you may have to put your house or car as collateral and, in the end, you could end up paying more.
Debt consolidation has additional advantages and disadvantages, which are discussed in more detail below. If you're struggling to make payments on your existing student loans, consolidating your student loans can make things a little easier by reducing your monthly payments in exchange for a longer repayment term (up to 30 years). If you want to consolidate your student loans, you can avoid this compounding by paying any outstanding interest before starting the consolidation process. If you have federal and private student loans, and you want to combine them into a single new student loan, you can't do that through consolidation.
Consolidating your loans could lead to lower monthly payments because the repayment term extends up to 30 years. While a debt consolidation loan is likely to appear as a business line on your credit reports, if you keep up with debt, it usually won't lower your credit score much, if at all, according to most rating models. Student loan consolidation is a way to restructure your federal loans to make them easier to repay, but it may not save you money in the long run. However, the inclusion of a Perkins Loan in a consolidation loan will result in the loss of other specific repayment benefits that are only available to that program.
The repayment term for a Direct Loan Consolidation Loan is up to 30 years and depends on the amount of the consolidation loan, your other student loan debt, and the repayment plan you choose. Once again, consolidation will extend the repayment period to perhaps 30 years, reducing the monthly payment. Even if you couldn't repay those high-interest loans, you could choose to consolidate all your loans except those, and repay them separately. If you wanted to consolidate your student loans but hoped to lower your interest rates first, you might consider paying off those higher-interest rate student loans first before consolidating.
If you're stuck on figuring out your next move, the Department of Education's Loan Simulator can help you decide whether you should consolidate or not. Credit counseling agencies provide financial assistance (including debt management plans and debt consolidation counseling), credit counseling, budgeting guidance and debt management counseling free of charge or for minimal cost. Whether or not you should consolidate your student loans depends on the type of loans you have and your financial circumstances. Again, the new interest rate is determined based on the weighted average of the interest rates of the loans being consolidated, rounded to the nearest eighth percentage.
Once you have assessed your financial situation and decided that consolidation is the path you want to go, you will need to apply through an online application on the Federal Student Aid website. . .