What does it mean to consolidate your student loans? Here’s a quick primer on this important financial aid topic.
College students often take out more than one student loan to pay for college. This can result in multiple monthly payments and an awful lot of paperwork. To simplify the process, and to save money, students often choose to consolidate their student loans, which means they combine all of their loans and make one (usually lower) monthly payment on all of them. Often, loan consolidation allows students to pay the loans off over a longer period of time, which results in a lower monthly payment.
How do you go about consolidating your student loans? You work with a bank. For information about this process, visit the Federal Direct Consolidation Loans Information Center at the U.S. Department of Education website. Compared to many other kinds of loans, loan consolidation is actually fairly simple. In fact, there’s not even a credit check when you consolidate government loans.
Students can consolidate both U.S. government student loans and private student loans. However, most lends recommend that public and private loans should not be consolidated together.
Is a loan consolidation right for you? Talk to your lender. In most cases, consolidation makes sense, but there are a few situations in which this might not be the best idea. If you have a Perkins loan, for example, you will lose the benefits that come along with this loan if you consolidate.
In addition, if you do consolidate, try to avoid the temptation of getting a lengthy loan payment plan that takes many years to pay off. The low monthly payment may be very tempting– and depending on your financial situation, this may be a life saver. However, keep in mind that the longer you take to pay off a loan of any kind, the more you will pay in interest. If you can handle the higher monthly payments, do so, and pay off the loan as soon as possible.