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The Pros & Cons of
Student Loan Consolidation
With some of the best
interest rates in years, a lot of people are considering consolidating
their student loans. It is important, however, to understand the full
implications of student loan consolidation. Below, we've compiled
a comprehensive list of the pros and cons of student loan consolidation
which you may find useful, especially if you are having trouble deciding
whether or not consolidating your student loan(s) is for you:
Student Loan Consolidation:
The Advantages
- If you have more than one student loan, you can consolidate
all your loans
into one loan product with a lower
overall interest rate. Besides lowering your overall debt
burden, you'll also have less checks to write at the end of
the month.
- Your lower interest
rate is locked in so that your rate will stay the same even
when the prevailing rate
goes up.
- If the United States government has been paying the interest
on your loan(s), the government will continue to do so even
after you consolidate.
- You can lower your monthly payment by extending your repayment
term.
- If the burden of your student loan has been too much for you
and you have defaulted on your loan(s),
consolidating may lower your monthly payment enough so as to
make repayment affordable for you.
- You can consolidate all your student loans, or you can choose
to consolidate some of your loans, or you can consolidate just
one
loan. The choice is yours.
- If you choose to consolidate your student loan(s)
together with your spouse, your monthly payment will almost
certainly be lower than what you and your spouse were paying
separately.
- Unlike other consumer loan products, there are no:
- credit bureau checks
- prepayment penalties
- bank fees
- If you consolidate multiple student loans,
you'll end up with one company or organization to contact for
questions, comments and complaints about your loans.
Student Loan Consolidation:
The Drawbacks
- If you choose to consolidate your student loan(s) during your
"grace period," your grace period becomes invalid
and repayment begins right away.
- You can only consolidate your student loan(s) once.
If you consolidate your student loan(s) now and, at some point
in the future, interest
rates fall even lower than the rate at which you consolidated,
you won't be able to re-consolidate.
- If you decide to go back to school after consolidating
your student loans, and you borrow more money under a federally
guaranteed student loan program, you will not be able to
consolidate this new loan together with your previous loan(s).
- If you choose to extend your repayment term, the overall cost
of your student loan(s) goes up.
- You will most likely lose deferment, forgiveness, cancellation
and forbearance options. For example, in my situation, the government
agreed to remove all derogatory items associated with the default
status of my student loan as long as I made steady payments
for a year. A bank would neither offer nor agree to a similar
deal.
- If you consolidate your student loans with your spouse, you
and your spouse will both be responsible for loan
repayment if you end up getting a divorce.
Looking for a great place to discuss
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