If you graduated from college this past spring, chances are you’ll soon enter the time when you’ll be required to pay off your federal student loan debt — i.e. your repayment period. At this point you ought to be asking, “Should I consolidate my federal student loans?”
To consolidate, you need to have at least one Federal Direct Loan or Federal Family Education Loan. You may designate all or some of them, along with your Federal Perkins Loans, for consolidation. The government’s consolidation loan repays the debts you designated. Depending upon how much you owe on your total federal student loan debt, you’ll get more time to pay off your consolidation loan than you had to pay off the loans it replaces.
Here are good things that’ll happen if you consolidate:
(1) You’ll Lower Your Monthly Payments: The longer you repay, the lower your monthly payment amount. Use the Federal Student Loan Repayment Estimator to figure out the repayment plans for which you qualify, estimate the monthly payment amount for each plan, and see how long that plan gives you to pay off your debt.
If none of your monthly payments looks affordable, you should consider borrowing a Federal Direct Consolidation Loan. Chances are it’ll give you more years to repay and lower your monthly payments.
(2) You May Expand Your Repayment Options: A consolidation loan may qualify for repayment plans for not open to your individual federal loans, but which may be helpful to you.
(3) You’ll Maximize Loan Forgiveness Benefits: If you’re starting a career as a public school teacher or in another form of public service, you should pursue the Federal Direct Teacher Loan Forgiveness or Public Service Loan Forgiveness Programs. The lower your monthly payments, the more you’ll get forgiven by these programs. Conversely, consolidating a Federal Perkins Loan can have disadvantages.
(4) You’ll Simplify Repayment: As its name implies, all your consolidated debts get combined with one loan servicer (a company the government pays to collect your debt(s) and give you loan-related assistance). The result? A single monthly payment and just one party to contact if you need help.
(5) You Pick Your Servicer: The government picks the servicer for all your other federal education loans. But under consolidation you make this selection. As you do, think about whether your current servicer(s) have met your needs and ask friends about experiences with their servicers.
(6) You Get One Fixed Interest Rate: All debts you consolidate will get the same interest rate. It’ll average out to the rate for each consolidated loan, rounded up to the nearest one-eighth of 1%. It’ll be fixed for the life of your consolidation loan. If you have old federal loans whose interest rates change annually, consolidation will bring that to an end.
(7) You Incur No Costs: You pay nothing for anything related to consolidating your loans.
Consolidation’s a good thing for most borrowers. But it’s also got some disadvantages. Definitely consider these before deciding whether to consolidate your federal student loan debts.
College Affordability Solutions can help you better understand the pros and cons of federal student loan consolidation. Call (512) 366-5354 or email firstname.lastname@example.org.