Student Loan Consolidation - The Pros and Cons

Graduating from college is a great feeling - until you take a look at all the loan statements that keep coming in from your student loans.  Consolidating your loans into one easy to manage loan with a cheaper interest rate seems like a great idea, but there are some cons to consolidating as well.

Consolidating your student loans can be a tricky thing to do if you and your spouse consolidate all of your student loans into one big loan.  While you're together and both alive, yes, you save a lot of money.  But what if your spouse dies?  If you have a joint consolidation loan, you go on being responsible for paying out your spouse's student loans.  If you'd set up two separate consolidation loans, your spouse's loan would cease.  Divorce can also be a problem if you have a joint consolidation loan, particularly if your divorce is a nasty one.

Just because you've organized a student consolidation loan in the past, there's no guarantee you'll be able to do it again in the future.   It will probably depend on which financial institution consolidated your student loans.  However if you have another student loan that you want to add to your consolidation loan, then you may be able to refinance again with the same or another lender.

One thing to be careful of, though, is that many institutions won't combine your student loans (which are federal) with your credit card, car loan or home loan (which are private).  This is because the government backs federal loans, so the lender always knows they'll get their money back and so will offer much better interest rates.  There's no guarantee to back your private loans, so rates are generally higher.  Still, consolidating your student loans and making your payments consistently will help to raise your credit score, which means you may then qualify for lower interest rates on your private loans.

Although it's important to be selective when you consolidate your student loans, and to think about the implications of doing so with a spouse, there's no doubt that you will benefit in many ways.  You can save money on repayments, improve your credit score and simplify your loan repayments.  So take the time to do your research, choose your finance company and loan deal wisely, and you'll definitely gain from student loan consolidation.