Consolidating your federal student loans has many advantages. There are also some disadvantages to be considered before making the choice to consolidate:
(1) You May Pay More in the Long Run: Consolidating generally lowers your monthly payments by giving you extra years to repay. But the longer you take to repay, the more of your lifetime income that goes to repayment.
The “Total Amount Paid” column on your Federal Student Loan Repayment Estimator can show how much you’ll on your loans and consolidated versions of your loans.
On the other hand, federal loans may always be prepaid without penalty, and paying your debt down faster than required will reduce your total amount paid.
(2) No More Perkins Cancellation/Discharge: If you consolidate Federal Perkins Loan debt, your access to the Perkins Loan Cancellation and Discharge programs goes away. These programs write off all or part of your Perkins debt in return for working in certain occupations, with a portion of the debt written off annually. These programs are the surest way to have student debt cancelled or discharged so, if you borrowed Perkins Loans, think carefully before consolidating them.
(3) Monthly Payments Could Start Earlier: Normally, federal student loan payments aren’t required during a 6-month grace period that begins when you graduate, withdraw, or drop below half-time enrollment. But consolidation repayment starts 60 days after the loan is made. If you’re applying for consolidation before your grace period ends, you may keep the full period by asking for repayment to be delayed until that period ends.
(4) Federal Loans Only, Please: State and private education loans aren’t eligible for federal consolidation. And, oh yeah, you’ll need to resolve any federal loan defaults you might have before you may consolidate them.
(5) Beware of Private Consolidations: Banks and other financial services companies can consolidate your federal student loans, but you probably don’t want them to. Why? You’ll likely lose all or most of the benefits of borrowing from the government. Check this out carefully before you even consider private consolidation.
(6) For Your Loans Only: A borrower may only have his or her own federal loans consolidated. This means students and parents cannot consolidate their federal educational debts, nor can spouses.
(7) All Consolidations Are Final: You can’t reverse the process. Once a Federal Direct Consolidation Loan pays off your other federal student loans, those debts no longer exist.
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.