Student loan consolidation is a great way to save money and pay off your loans faster. However, it can be a little confusing to know if you should consolidate or not.
While there are many benefits to using a student loan consolidation, there are also some risks that you need to consider before making this decision.
This article will help you weigh all of the pros and cons so that you can decide whether or not student loan consolidation is right for you.
What is student loan consolidation?
Student loan consolidation is the process of combining multiple federal student loans into one new loan with one interest rate. It’s often done by consolidating student loans with different terms and different repayment plans so that you only have one payment due per month.
Consolidating your loans will make it easier to manage your monthly payments and reduce the total amount of money you owe on your debt.
There are primarily two types of student loan consolidation programs:
Federal student loan consolidation
private student loan consolidation
The main difference between the two is that federal student loan consolidation offers more protections for borrowers and is, therefore, the better option. However, many people are eligible to consolidate their private loans into a Federal Direct Consolidation Loan and should consider doing so if they can afford it.
Student loan consolidation rates
With a student loan, you’re not just paying interest. You’re also making payments that go towards the principal of your loan. This means that if you don’t pay on time, you’ll be paying more interest in the long run.
The good news is, that there are several different options available for consolidating student loans and they all offer fixed rates as well as variable rates based on your credit score and income level.
The best way to get a lower rate is to consolidate your loans into one. You can do this either through the Department of Education or through your lender.
Through the Department of Education, you can consolidate your student loans at fixed rates from 3.24% APR to 8.24% APR (excludes 0.25% Auto Pay discount).
Through your lender, you can consolidate your student loans at variable rates from 1.99% APR to 8.24% APR (excludes 0.25% Auto Pay discount).
Student loan consolidation: pros and cons
Pros of student loan consolidation
If you have multiple loans, consolidating them into one low monthly payment will help you save money.
Consolidating makes it easier to manage your monthly payments. You may be able to reduce fees and interest rates.
Consolidation can help if you are having trouble paying your student loans back on time or at all.
Get a fixed interest rate on all your loans. Consolidating your loans can help you qualify for a lower interest rate. You may be able to get a lower interest rate if you consolidate federal student loans into a Direct Consolidation Loan.
Work with a new loan servicer. When you consolidate your student loans, you work with a new loan servicer. This can make it easier to manage your payments and track the status of your loans. Consolidating your federal loans can also help you get a lower interest rate.
Cons of student loan consolidation
Your principle could increase. Consolidating your student loans could increase the principal balance of your loans and add additional interest. You may pay more in interest over the life of your loan.
Your credit score could be affected. If you have a high debt-to-income ratio, consolidating your loans might lower it enough to affect your credit score.
Lose your emergency protections. Student loan consolidation puts all of your loans into one repayment plan. If you have an emergency, you may not be able to access the same protections that are available under other repayment plans. For example, if you lose your job or experience another financial hardship, it will be more difficult to get forbearance or deferment on a consolidated loan than on an unsubsidized student loan.
Keywords: private student loan consolidation, Student Loan Consolidation Rates
