When Loan Consolidation is the Answer

Too Many Bills, Not Enough Income

While most students try to be frugal, the various types of loans taken out to pay for college expenses can add up to rather difficult monthly payments. You still need to eat, you still pay household expenses and barely scraping by from month to month can be stressful. By consolidating your loans, you have only one monthly payment to meet. Even though it means you may have to pay more over a longer period of time in interest rates, it may bring a sigh of relief to your monthly budget.

Most borrowers have a mix of consolidated and unconsolidated Stafford loans to pay. The interest rates of these loans can vary, so be sure to check with your loan servicer to find out the interest rate on each loan and whether or not it’s fixed. Your consolidated loan will be based on the average interest rate of all your loans combined.

The Beneficial Loan

Private lenders, such as banking institutions, are usually very happy to consolidate your loans for you. Federal loans can be consolidated into private loans, but private loans cannot be consolidated into a federal loan. The chances are, however, that your interest rate on a consolidated private loan will be much higher, plus some federal loans contain benefits.

The Perkins loan carries forgiveness options that the Stafford or PLUS loans do not. Graduates can have as much as one hundred percent of their Perkins loan forgiven, if they join the Peace Corps, enter law enforcement, join the military, or become a science teacher.

The Perkins, Stafford, and Grad Plus loans offer income based repayment options. Parent PLUS loans do not. It is better not to combine a Parent PLUS loan with any type of loan consolidation as it can hurt your credit.

It Doesn’t Have to Hurt

Although the advice is usually not to combine your loans unless you’re in dire straits, it’s not always a bad idea. Consolidation of your loans can give you access to another type of loan forgiveness, such as the Public Service Loan Program and the pay-as-you-earn repayment plan. Do your research carefully. Learn the interest rates on your individual loans and study the various options for loan forgiveness and repayment plans.