Should You Consolidate Your Student Loans? (And What Does that Mean, Anyway??)

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The idea of consolidating is simple: smoosh all your student loans into one single loan and one monthly payment. You may be tempted to consolidate your student loans all together in one payment, which makes life easier, but beware: loan consolidation isn’t a magic cure-all. There are a lot of traps out there. A few words of caution if you do decide to go this route:

  1. Timing is everything. If you can, wait until you’ve graduated before consolidating your student loans, but don’t wait too long. Typically, you get a six-month grace period when you graduate before you have to start repaying your student loans. And that’s where the sweet spot is: you can oft en get a lower interest rate for repayment if you consolidate during the grace period. Quick PS: if overall interest rates are high during your grace period sweet spot, it might be better to jump into paying (or trying your best to pay) right off the bat and then wait for rates to come down before considering consolidation.
  2. Lock in a fixed rate. Regardless, once you decide to consolidate, you want to choose a plan that lets you have a fixed rate. That way, your budget doesn’t hate you for having a different payment amount every single month. This can save you a ton of money in the future, especially if rates climb higher, and will make your monthly payments more predictable.
  3. Don’t assume the advice you got from your college financial aid office was right. Financial aid offices exist to make sure students find a way to pay for college, which is not the same as making sure you’re doing what’s best for you. They’re really about doing what’s best for the school. That’s their obligation first and foremost.
  4. Don’t get scammed. Some “consolidation experts” (a.k.a. scammers) claim to be able to lower that monthly payment, so you’re somehow paying less each month than before. This would be awesome . . . if it were true. What is true is that the “standard” consolidation fee that you’re supposed to pay to cover processing and administrative costs can range from a few “low” payments of $29.99 up to several hundreds of dollars. Student loans are expensive enough. The last thing you want to do is pay even more than you need to.


2017-01-23T08:54:51+00:00 Finance 101|

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