Is Consolidating Student Loans a Good Idea?

is consolidating student loans a good idea

Many students take out student loans to cover some of their education costs. Student loans are sums of money you borrow with the intention of repaying them in the future to cover the cost of attending school.

Even after graduating from college, many people today are having difficulties managing to pay their student loans.


According to the Urban Institute, between 30 and 40 percent of all undergraduate students borrow money from the federal government each year, and by the time they graduate with a bachelor’s degree, 70 percent of students have accumulated student loan debt.


According to Forbes, “The cost of college has steadily increased over the last 30 years. In that timeframe, tuition costs at public four-year colleges grew from $4,160 to $10,740 and from $19,360 to $38,070 at private nonprofit institutions (adjusted for inflation). As costs have risen, so has the need for student loans and other forms of financial aid.”


Student loan consolidation, which refers to the process of consolidating numerous federal student loans into one new loan, is one idea that has been put out as a solution for student loans. However, is consolidating student loans a good idea?

This article will provide you with information on every aspect of consolidating student loans. With this knowledge, you can make an informed choice regarding your student loans.


What Is Student Loan Consolidation?

Consolidating student loans refers to the process of merging several federal student loans into a single new loan.

A Direct Consolidation Loan enables you to combine one or more federal school loans into a new Direct Consolidation Loan to minimize your monthly payment in a single payment term.

Every one of these student loans has a different payment schedule, interest rate, and due date. That type of timeline is hard to keep track of, which is partly why so many people have failed.

Consolidating student loans operates like other debt consolidation strategies — student loan consolidation can cut your monthly payments or provide you access to different repayment options.

However, it cannot lower your interest rates. Instead of paying several payments to various lenders each month, the new loan’s amount will pay off the principal balance of all of the consolidated student loans, leaving you with only one lender’s bill to pay.


What To Consider Before Consolidating Student Loans

It is true that consolidating student loans can make repayment simple by merging many student loans into a single loan with a single monthly payment; however, consolidation still isn’t the greatest option for everyone.

Consolidating student debt is something you should consider carefully to be sure it will work for you and meet your needs.

Here are some important things to consider about consolidating your student loans:


Federal Student Debts Can Only Be Consolidated Once

If you decide to consolidate your student loan, you only have one chance — so make sure everything is in order. Make sure you understand how many federal loans you have, as well as their terms and interest rates, before proceeding.

In rare circumstances, you may be eligible to combine your federal loans a second time.

If you have loans that weren’t included in the initial consolidation or if you have defaulted on a Federal Family Education Loan (FFEL) Consolidation Loan, you may be able to reconsolidate.

However, as a general rule, consolidation can only happen once.


It Won’t Lead to a Reduction in Interest Rates

Consolidation of your student loans can assist you in trading many variable rates for a single fixed rate, but you won’t always end up with a reduced rate overall.

The Direct Consolidation Loan takes the weighted average of all your present interest rates to calculate your new rate, which is rounded up to the closest eighth of a percent.

A Direct Consolidation Loan’s interest rate is not capped. Even after consolidating your student loans, you’ll probably still be paying a high interest rate if you’re currently paying one.


longer payback period

As a result of combining all of your debt into one payment, consolidation may result in lower monthly payments. However, consolidation may also result in a longer payback period, increasing the time it takes to repay the debt.

Depending on how many loans you are consolidating, consolidating student loans can lengthen the duration of your payment from ten to twenty years, for example.

In addition, the total interest you would pay over the course of your loan might go up as a result of this lengthier time.


Your Principal Debt Will Be Increased by Any Unpaid Interest

Once you consolidate, any unpaid interest on your loans (often as a result of deferral or forbearance) will be added to the principal balance. Because of this, you will be paying interest on a larger debt, which adds up more quickly.

Consolidation may result in higher total costs throughout the course of your loan, depending on the amount of unpaid interest you have. Consolidating might therefore wind up costing you more in the long run, depending on the amount of unpaid interest you have.

Consolidating may influence your eligibility for public service loan forgiveness and income-driven repayment plans

The payments made toward an income-driven repayment plan may not be credited if you consolidate your student loans. Additionally, you will no longer be eligible for Public Service Loan Forgiveness (PSLF).

It’s important to know whether you’re getting near the finish line even if you shouldn’t count on these programs to fix your student debt situation. For example, you have made 100 eligible payments, yet, you choose to consolidate your student loans — your new direct consolidation loan resets your payment count for forgiveness to zero.

In addition, you would forfeit whatever payments you had made that were eligible for Public Service Loan Forgiveness (PSLF). However, if you consolidate payments for PSLF, you won’t lose credit because of temporary relief.


Is It a Good Idea (Pros and Cons)

To better help you weigh your options and gain a better understanding of the situation so that you can make an informed decision, here are the pros and cons of consolidating student loans.


  • Single payment: Since consolidation is the process of consolidating all of your federal debts into one, you will only need one payment. One lending institution will handle the loan servicing, and there will be just one monthly payment due. This will help you reduce a great deal of stress and time in keeping up with different amounts, due dates, and payment methods every month.
  • Prevent default: If you’re having challenges in making your payments each month, you can modify the conditions and minimize your monthly payment by consolidating your debt. This will help you improve your credit score by preventing defaults.
  • Lower monthly payment: Although you will have a longer payback period and pay more interest rates, you will also have a lower monthly payment. This can be an advantage to people who prefer lower monthly payments — you may not feel the weight of the overall interest rate because you are paying less every month.
  • Fixed interest rate: There are potentially many various interest rates if you have different loans. Consolidating student loans will result in a single interest rate which is calculated by averaging the interest rates on all the loans being consolidated and rounding the result to the closest eighth of one percent.
  • Multiple repayment plans: Several repayment options are available for Federal Consolidated Loans, and borrowers are free to select the option that best meets their needs. Additionally, you are always free to change your payment options.
  • You can choose your federal loan servicer: Previously, you were not allowed to select the loan servicer. If you consolidate your student loans, you may choose from a variety of services to handle your new direct loan going forward if you’re dissatisfied with your current servicer.



  • Pay more in interest over time: Consolidating your student loans will result in reduced monthly payments, but you will end up paying much more in interest because the loan term will be extended.
  • Lose the advantages of a federal loan: If you’ve already started making payments toward Public Service Loan Forgiveness, consolidating your debt will start the process over again for you to become eligible. In addition, you might forfeit benefits under other programs if some loans are merged with your student loans.
  • Lose borrower benefits: Your current loans’ borrower perks, such as interest rate reductions, principal refunds, or any incentives related to loan cancellation, may be lost if you consolidate.
  • No retries: Student loan consolidation is a one-time-only option — you won’t have a second chance if you realize there are better options available based on your financial situation or needs.


Student Loan Consolidations Vs. Refinancing

Consolidation of loans has varying effects based on whether you refinance into private student loans or federal direct loans.

If you are considering refinancing versus consolidating your student loans, both may be worthwhile choices if you know their differences.


Federal Student Loan Consolidations

The federal student loan consolidation, or known as a direct consolidation loan, is a loan provided by the US Department of Education that enables you to consolidate numerous federal education loans into a single federal loan.

You can only merge federal student debts through a direct consolidation loan.

The government has agreements with many student loan servicers even though all federal student loans are qualified for the same repayment options.

Your repayment process can be made simpler by consolidating your student loans so that you are only responsible for one monthly payment.


Student Loan Refinancing

Refinancing is the process by which you combine your student loans with a private lender and get new rates and conditions. You consolidate your previous student loan debt with a new loan; if you meet certain requirements, you may be eligible for a lower interest rate.

The precise process might vary depending on the private lender; along with other financial data, private lenders look at your credit history and score to determine the interest rate and terms they may provide.

To put it simply, a private lender will pay off your current student loans and provide you with a new loan with new conditions if you are eligible for a refinance.


The Bottom Line

Consolidating your federal debts is a wise option that will aid in debt management. However, based on its drawback, consolidating student loans does not always imply you’ll save money.

Even though you will have a lower monthly payment, you will have a longer payment term — meaning, you’ll have to pay more interest.

However, depending on your current financial situation and needs, consolidating student loans can still be a great solution to manage your loans.

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