Student loan consolidation is a way to combine more than one existing student loan into a single loan that is handled by one lender and carries one interest rate. This provides convenience for the borrower and might also lower the monthly payment amount, which can prove helpful for budgeting purposes. Whether or not student loan debt consolidation depends on a combination of whether or not you meet the criteria to receive such a loan and if the new terms of the consolidation will fit within your financial plans.
Time Period
If you are currently in a grace period -- the six-month period of time after you graduate from college, which precedes the repayment phase -- or you are in the repayment phase, you can apply for a consolidation loan. You can also apply for consolidation if you have at least $5,000 in student loans and you attend school at least half-time. Yet, you will lose certain benefits such as in-school subsidized interest and the benefit of a 6-month grace period before repayment once you graduate. Instead, you will be required to begin immediately repaying your consolidation loan once you graduate.
Types of Eligible Loans
Eligible loans for consolidation include subsidized and unsubsidized Stafford loans, Federal Direct Stafford and Parent Loans for undergraduate Students. Other eligible loans are the Federal Direct PLUS; Perkins; Health Profession Student Loans; Loans for Disadvantaged Students; Nursing Student Loans; Federal Consolidation Loans and and Federal Direct Consolidation Loans
Interest Charges
Be aware that the interest rate -- which cannot exceed 8.25 percent -- may be higher on a consolidation loan than the rate on some individual loans. Also, consolidation loans often are on extended repayment terms, so you will pay more in interest of the life of the loan.
Payment Flexibility
When you consolidate your student loans with a lender, they will offer you the option of several different payment plans. Examples are lower payments for the first few years after you graduate from college, equal monthly payments or a graduated payment scale. You can often choose the payment option that best suits your financial situation.
Things to Think About
If your students loans total around $5,000, you may not want to hassle with a consolidation, which will extend the life of the loan and probably cost you more in interest. If the total amount of your existing loans is low, then you can probably manage the payment and achieve repayment much faster than if you consolidated. Deciding to consolidate can also affect the total amount you're expected to repay due to a change in interest rates. You also could lose your right to have your Perkins Loan -- if applicable -- reduced or forgiven.
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