NEWS: Student Loan Consolitation: Not Always a Good Idea


Are you a college graduate interested in consolidating your student loans to one convenient payment with the possibility of an even lower interest rate? Student loan consolidation helps you manage all your loans in one easy account and keeps you from being delinquent on your repayments.

Alternatively, a student loan consolidation might not be the best option for you. Learn about the advantages and disadvantages and all your options before applying for a consolidation loan with the Department of Education.

Advantages of Consolidation

Consolidated loans offer a variety of options, including income-based repayment plans that often give a lower fixed interest rate spread out for 30 years. But keep in mind that even though the interest rate is lower your plan may extend beyond the average 10-year repayment.

Some student loans operate on a variable interest rate, and the rate can change every year on July 1. With a consolidated loan, a fixed interest rate means you make a predictable payment, even when rates change.

Disadvantages of Consolidation

Some student loan consolidations do not provide an advantage, the biggest issue being that lenders will require borrowers to extend the loan, which increases interest and ultimately cause you to pay more in the long run.

Also, student loan borrowers have the potential to get locked into a higher interest compared to one they could secure in the future.

Which Option is Right for You?

In 2013 Congress passed the Bipartisan Student Loan Certainty Act of 2013 which requires that all new student loans will have a fixed interest rate for the life of the loan. These rates will be determined in June of each year.

Sometimes consolidation loans are a good idea, but sometimes they aren’t. If you’re having problems making your student loan repayments a consolidated loan could save you in the short term but cost you more in the long term.

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