Student Loan Consolidation

Consolidation of student loans cover the FFELP which includes the Stafford loan, as well as the SLS. Other student loans which can be consolidated include the FISL, Perkins, NSL, HEAL, Health Professional Student Loans, Guaranteed Student Loans and the Direct Student Loans. There are also private consolidation of student loans offered for people who have private student loans.

So how does this consolidation of student loans actually work and what are the advantages? Basically, what it does is lower your monthly payments through the extension of your repayment term well beyond the 10 year plan which is typical for federal student loans. This reduction would make it easier for you to repay the loan. But there is of course a downside to this whole thing and that is the increase the total amount of interest you’d have to pay. This is a direct effect of the extension given. The longer the repayment time the bigger the increase.

There are some instances during the consolidation of student loans where it is possible to have a decrease or a reduction in your monthly payment without having to extend the repayment terms beyond the standard this is when the repayment terms of the student loan is actually less than 10 years because of the minimum required payments. Generally, shorter student loans are extended up to 10 years and unless the same monthly payment can be maintained the total amount of interest would increase.

Consolidation of student loans before the start of repayment can be done with the lower in-school interest rates. So while the weighted average might reach up to 0.13% consolidation of student loans before actual repayment would save you a significant 0.6% net savings.

There are also a number of benefits that one can get if they opt for the consolidation of their student loans and these include:

• A single payment in lieu of the multiple payments for the student loans.

• Access to the many alternatives including the option for extended payment, income contingent payment and graduated payment.

• Lock in of the interest rates which include the lower in-school interest rates within the grace period.

But with such great advantages come disadvantages as well:

• Consolidation of student loans within the grace payment would require immediate repayments as well as the loss of the person’s remaining grace period which include the benefit of subsidized student loans.

• There is also the loss of student loan forgiveness provisions included in the Perkins student loans.

• The extended repayment terms would increase the total amount of interest that the borrower would have to pay during the entirety of his or her loan.

The current law states that the consolidation of student loans can only be done once. So when interest rates plummet, if you have already consolidated your student loan you are officially ineligible to benefit from this fantastic event. Lenders who are offering benefits for people who make electronic fund transfers as well as timely repayments are also likely to be offering less appealing benefits for the consolidation of student loans.