The Payoff of Student Loan Consolidation

Consolidating your student loans can make a big difference to your financial situation once you graduate from college.  Paying multiple student loans can leave you with quite a big bill every month, let alone the confusion of making different payments on different dates.  By consolidating, too, you can lock in your interest rates at some of the lowest we've seen in a long time, so you can be confident of having lower repayments for some time.

Most federal student loans are also only for a period of 10 years.  By consolidating, you can extend the loan repayment period out to as much as 30 years, which can reduce your monthly payments substantially.  Almost any type of federal student loan can be consolidated, including Federal Direct Loans, Federal Stafford Loans and Federal Perkins loans, as well as student loans from other sources.

One thing you must check is that the interest rate on your new loan is the same or lower than what you're currently paying.  There's not much point consolidating if it's going to cost you more.  Having said that, though, you might find you're comfortable paying a slightly higher interest rate because you can extend the consolidated loan for a longer period and pay less each month that way.  Still, remember that by extending the loan you also increase the amount you will pay over the whole life of the loan.  So think seriously about taking that step.

Take some time to look around before choosing a student consolidation loan.  You'll need to have the details of all your existing loans, including balances, interest rates, and details of the companies that hold the loans.  If you can't find all your paperwork, you can contact the National Student Loan Data System (NSLDS), which holds complete and accurate information about federal loans.

Check to see whether the lender offers a variety of repayment options.  You may be happy just paying the same amount every month until the loan is paid off, which is fine.  However some companies give you the option of graduated repayments, which means your payments gradually rise over the years.  This is meant to tie in with your increased earning capacity as time passes, and helps you to pay off the debt much sooner.

Consolidating your student loans can give you a big financial benefit, but make sure you ask lots of questions and find a consolidation loan that suits your own personal needs.  That way you'll get the most benefit from consolidating.