Consolidate Student Loan Accounts: 10 Cool Benefits, 5 Possible Drawbacks
To consolidate student loans or not: It’s a good question. I consolidated my student loans for some good reasons. You might benefit, too.
Below you’ll find the ten benefits with a brief explanation, and then on the next page 5 possible drawbacks and how to avoid the ones you can.
10 Benefits When You Consolidate Student Loans
These aren’t in order of importance, by the way.
1. Lower Monthly Payments
Ah, the holy grail of debt consolidation of any kind. One of the main functions of the student loan consolidation program, you can lower your payment by up to half, or so. The exact figure is approximately 53%, but your number will depend on the loans, interest rates – the usual stuff.
2. Just One Payment
A big attraction. You won’t have to deal with several companies, just one for the loans you consolidate. This comes up again if you ever ask for forbearance on your student loan. You won't have to fill out the forms for several companies and send them in separately.
3. Many Student Loans Qualify
All of the federal government FFEL loans qualify, such as Stafford loans, Perkins loans, PLUS Grad loans (for grad students; parent loans can be consolidated for the parent, not with student originated ones) and so on.
4. Rate Sweeteners
Many consolidation loans come with the benefit of a lower rate if you make a bunch of payments on time, or if you use auto-payment functions. Lower rates save you some money. Can add up to over a full percent of interest, which helps.
5. Longer Payment Terms
You may have seen this coming. If a bank or lender lowers your payment, you probably have to pay longer – sort of a double edged sword. On the good side, you won’t have to come up with as much every month. That can be a life saver. On the down side, you could be paying until your kids are in college themselves.
6. Fixed Rate Interest
When you consolidate student loans, you get a fixed rate to replace the variable rates on some student loans. Nice, because you don’t have to worry about how much you’ll pay next month or the rate going up.
Your rate will be a weighted average of all the rates on your current loans, rounded up to the nearest 1/8th %.
7. Grace Period Benefit
If you consolidate during your grace period, you get a discount of half a percent off the current repayment rate. A nice little discount for getting it done early.
Some companies will hold your paperwork until the end of your grace period to keep you payment free longer. For others, you will have to handle the timing. Half a percent is fairly valuable, about $50/year for every $10,000 you owe.
8. Simple Application Process
Nice. You don’t have to go through a credit check or get a cosigner. No fees. Just fill out the short form, which is much easier than a FAFSA, and you’re in.
Seriously, you can fill out this form in just a few minutes. You will need to fully identify yourself so that the lender can find your other account and then consolidate student loan accounts for you.
9. Continued Deferment Benefits
Even after you refinance, you can defer the loans for a time if you have economic troubles. I know, I’ve done it. I was unemployed for a while and need the loan deferred. 1 short form, and it was done. Very helpful.
Deferment is closely related to forbearance, and these benefits carry a lot of weight. Who wants to pay on a loan that hasn't gotten them a job, right? So you can postpone some payments while you look. When you consolidate student loan accounts, you get to keep this cool and valuable benefit.
10. Basic good policies and minor benefits
I’ve put all of these together in one item, but you could break them out into several more.
No prepayment penalty: If you want to send in extra, go ahead.
Service life: Most companies keep your loan, so you don’t have to keep changing addresses of where you send your payments.
Consolidation loan interest: is deductible just like student loan interest.
Credit score: Combining the loans may improve your credit score, though there is no guarantee of this.
Federal Student Loan Subsidy: continues in consolidation for the dollar amount of loans that have it.
Your Decision: Consolidate Student Loans, or not
If you consolidate student loans, you get this list. Nice, right? I thought so, and have consolidated after my bachelors degree and after my masters. I have one payment now, and I prefer it to several, my benefits are intact, and I can make the payments easily.
I know plenty of people with much higher balances than I have, who probably couldn’t survive without consolidation. It really helped them.
Page 2 for the 5 Drawbacks to think about
On the downside, consolidation does have some drawbacks. I have talked about a couple above. As I see it, there are 5 that deserve mentioning. See my drawback page for a description of those items.
Tell a Friend
Know someone who should read this page? Send them the link, with one of the services below. Take a look.