Advantages and Disadvantages of Student Loan Consolidation
Before making a conscious decision to consolidate your student loans, you need to have a solid understanding of the advantages and disadvantages of doing so. While consolidation is generally a good idea and makes life more manageable, it isn't for everyone. In this article, we'll look at both the pros and cons of student loan consolidation and help you make that decision.
Let us start by looking at the benefits of consolidating student loans. The first advantage is that consolidation allows you to make a single payment each month at a reduced interest rate. Instead of managing multiple payments and dealing with several lenders, you deal with only one. Depending on the terms you negotiate, your monthly payments can also go down. Consolidation also gives you more flexibility. It lets you customize your loan to fit your current financial situation in life. You have the ability to negotiate its length, monthly dollar amount, and other terms. You can choose to pay it off quickly or stretch it out over a longer period of time. If you are still in school and accrue more debt, you also have the ability to add additional amounts to your principal by re-consolidating your loans. This is another key benefit. Moreover, federal student loan consolidation is advantageous in that they are no upfront fees or other costs associated with them.
Having discussed the benefits of student loan consolidation, let us now turn to some of the cons. For starters, you may lose some of the benefits offered by your current lender(s) for your unconsolidated loans. These include things like penalty protection, rebates, and interest rate discounts. Next, if you consolidate you could forfeit any grace periods that may have been available to you. Most student loans will give you a grace period before you have to start making payments but if you consolidate immediately after graduation, for example, this could be lost. You may want this grace period to find a job first. Another disadvantage is that even if you consolidate, there is a chance you could wind up paying more in the long run. Depending on how you negotiate your terms, you could get a reduced interest rate with lower monthly payments but if it is over a much longer period of time, you'll still pay more in interest. Lastly, if you consolidate to a lower interest rate you could lose your discharge benefits such that you also lose out on any interest savings.
As with any other major decision, you need to weigh all your options and carefully evaluate the advantages and disadvantages of consolidating your student loans based on programs you qualify for, current interest rates, and your present situation. Don't make any rash decisions or sign on with the first lender that comes your way. Be sure to shop around extensively and talk to different lenders to see what type of deals they may be able to offer you. Good luck and happy hunting!