Consider this Before You Consolidate

By: Brandon Schleter, August 27, 2015

Is watching all the students heading back to classes this month making you miss those days of campus life, endless parties….and no student loan payments? You’re probably dreading making that next payment – or that looming first payment that’s coming due in a few months – and if you’re like many recent graduates, you’re paying those loans to a number of different lenders. You’re probably thinking to yourself, “Why did I have to take out so many different loans?” Then the thought comes across to consolidate them, because let’s face it, ease of access just makes anything less stressful and confusing, right?

However, before consolidating your student loans, make sure you know the details of each one. Perhaps the most important thing to keep in mind is that consolidation only applies to your federal loans. Private loans will not consolidate. Most students believe that if they consolidate, it’s done and they only owe one payment. Don’t fall into this trap – it could haunt you. I had a friend who consolidated her loans, and inadvertently went several months without paying the private loans. This spells disaster for your credit score which will ultimately cost you more money down the line as lower scores mean higher interest. It is worth noting, however, that private lenders will happily pay off your federal loans to consolidate them into one place.

You will lose a number of benefits that federal student loans carry, so this option primarily benefits the private lenders. What benefits do these federal loans come with? Depending on the type of loans you have or your unique situation or type of work you’re doing, you may qualify for certain loan benefits. These range from principal rebates, loan forgiveness, or flexible payment options. If you consolidate to a private lender, you may lose these benefits along with facing a higher interest rate, potentially costing you more money down the line.

Overall, consolidation may make sense for some graduates, depending on their loans, income, and budget planning. It is a seemingly easy action, but actually requires a lot of planning and consideration before you act upon it. Creating a budget and knowing the consequences of consolidating is a must. Setting up automatic payments can also allow for easier and less stressful payment options. Even if you choose not to consolidate, still knowing how to live below your means and staying on top of your finances will lead you to be in more control of your post grad life. Do you know someone who graduated this year, or needs help managing their student loans? Let us know so we can talk to them about their options. We are happy to help with any questions, so give us a call, message, or comment. We’d love to hear your thoughts! More information can be found here: Money Knowledge for College-and Beyond (American Student Assistance)

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