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Advantages and Disadvantages of Student Loan Consolidation

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Do you have student loans? If so, you are all too familiar with making multiple student loan payments throughout the month. This can be particularly bothersome if you are having to make more than three or four per month. Not to mention, a missed payment can take a serious toll on your credit rating. Student loan consolidation loans may seem like a great deal on the surface, but even though they can help you take the headaches out of making multiple student loan payments every month, they still might not be the right choice. Here are a few things that the U.S. Department of Education wants you to know about student loan consolidation before you sign on the bottom line.


Of course there is the single monthly payment benefit, which is a huge benefit to most borrowers, consolidating your student loans gives you the best options when it comes to repaying them. This is because you get many more options with a consolidated loan than you do with individual loans, including an income based plan. This is perfect for those who are just starting out and are not making a lot of money.

Consolidated loans offer longer repayment terms, up to 30 years, which has the added benefit of lowering your monthly payment, even if you don’t qualify for an income based repayment option. Plus, you can get a lower interest rate on your new consolidated loan than you had when you originated your original student loans, which can both lower payments as well as lower the amount of money you pay back over time.

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Disadvantages of Consolidation

The biggest drawback to consolidating student loans is that it increases the amount that most people pay over time. This is because they choose to extend their repayment period to 15 years or longer, which lowers their monthly payment, but extends the time that you pay interest, which increases the amount you will pay back. Also, you may be faced with a higher interest rate than your original student loans if the economy is in a better place than it was when you took them out.

Which is Right for You?

The bottom line? It all depends on your own, unique set of circumstances. In some cases, consolidating your student loan debt makes a lot of sense. This is especially true if you need to reduce your debt to income ratio for loan purposes such as obtaining a mortgage. You can combat some of the disadvantages of consolidation by paying back more than you are required to do each month. This combats the issue with paying too much in interest charges and also reduces the amount of time it will take you to pay off your debts.

If you are enjoying a really low interest rate on your individual loans, it may not make sense to consolidate. Instead, set up automatic payments for each of your loan accounts so that they are withdrawn on time every month. It will be a hassle at the beginning, but can pay off in spades in the long run.

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