What are the pros and cons of student loan consolidation?

Today, there are many student loan debt holders that are considering the consolidation of these loans. For a number of reasons, doing so can make a great deal of sense. Yet, there are other factors to consider before singing on the dotted line in order to ensure that proceeding with a student loan consolidation is the right thing for you.

Essentially, the consolidation of one’s student loans entails taking multiple loans that are held by an individual typically with differing payments, interest rates, and loan terms and combining them into one single loan with one lender. This can oftentimes make the payments on a student loan much more manageable. And, in addition to convenience, there many are other great advantages.

Advantages of Student Loan Consolidation

There a number of great advantages when one consolidates their student loans. These may include:

  • Just One Monthly Payment Due One of the biggest benefits to a student loan consolidation is that rather than being obligated to pay several different loan payments each and every month, the borrower will instead have just one single payment to make, essentially making the repayment much more manageable.
  • Alternate Plans of Repayment When one consolidates their student loans, they will also have access to different choices for repayment plans that may fit better into their overall financial situation.
  • Possible Lower Interest Rate Based on the borrower’s credit and other financial factors, it is possible that they may obtain a lower interest rate on their new consolidation loan. This, coupled with an extended repayment term, can make the borrower’s new payment considerably lower over the remaining life of the loan.
  • Resetting of Deferments and Forbearances When a borrower consolidates, they are able to reset the three-year clock on certain deferments and forbearances. Because the consolidation is technically a brand new loan, it will begin with its own new set of these.

Drawbacks to Consolidating Student Loans

While there are many benefits to consolidating one’s student loans, there can be some potential drawbacks too. And, although these may or may not be enough to deter a borrower from not completing a student loan consolidation, they should certainly be factored into the overall decision. Some of the potential disadvantages include:

  • Loss of the Loan’s Grace Period If a student loan borrower decides to consolidate their loans during the grace period on the loan, they will lose this and will need to begin making their loan repayments immediately.
  • Loss of Subsidized Interest and Other Benefits of Perkins Loans For those who are considering consolidating a Perkins loan, the interest benefits will not typically survive a loan consolidation. In addition, those who consolidate a Perkins loan will also lose the favorable loan forgiveness provisions.
  • Extended Repayment Period The extended repayment period on a loan consolidation can actually be both a blessing and a curse. On the one hand, it can allow for lower loan repayments by virtue of the fact that you will be repaying the loan for more total months. However, the fact that you will be in debt for a longer period of time can also be a drawback in that you may want to rid yourself of the monthly payment sooner rather than later.