Should you consolidate your student loans?
There’s no doubt that student loan debt is often necessary for young adults to get through college. However, figuring out the best way to pay back the borrowed money can be a bit confusing. Many students have questions about the pros and cons of consolidating multiple students loans.
What is student loan consolidation?
As part of a college student’s financial aid package, they often receive offers for several different student loans from multiple sources, including the government and private lending institutions. Most students don’t have just a single loan but borrow money from multiple sources.
Student loan consolidation is combining all those different loans into one. There are definitely pros and cons for student loan consolidation.
Pros of student loan consolidation
One of the biggest advantages of consolidating student loans is the convenience of one payment. Instead of juggling multiple due dates and interest rates, a consolidated student loan makes it simple. Another benefit is that often consolidated loans offer a lower interest rate than some other types of loans. This could reduce the amount students pay over time.
Most consolidated loans are created with a fixed interest rate, meaning it will not fluctuate during the life of the loan. Of course, student borrowers can revise loan terms down the road if they eventually qualify for an even lower rate. Also, consolidated student loans usually do not have an early payoff penalty.
Cons of student loan consolidation
Depending on the type of loan, students may actually have lower interest rates and consolidating may actually put them at a higher rate. Also, student loan consolidation may lead to a longer repayment period than the original loans.
Student borrowers must be familiar with the different interest rates on their multiple loans. If there are variable interest rates, they could see their payment amounts go up as interest rates rise. Students should also look closely at the terms of the loan to see if there are any penalties for early payoff.