Should You Consolidate Student Loans?

In order to make it through the years of school, students take on a lot of debt from various loans. Sometimes, these loans come from private lenders with higher interest rates and fewer protection. Most loans, however, are funded through the Federal Government. These loans come with several protections and repayment plans. If these loans are through private lenders, they may become difficult to keep track of unless you consolidate them. In many cases, a Direct Consolidation Loan may help you to lower your monthly payments, give you a longer time to repay the loan, or even give you access to income-driven repayment options. Here is what you need to know about consolidating your student loans.

What is a Direct Consolidation Loan?

A Direct Consolidation Loan combines several existing loans into one, resulting in one monthly payment instead of several payments each month. It may be used to consolidate Federal loans, but private ones may be considered in determining monthly payment options. It may also give you access to new types of repayment plans.

What types of loans may be consolidated?

            Nearly all Federal loans may be considered for consolidation, including:

• Subsidized Federal Stafford Loans
• Unsubsidized Federal Stafford Loans
• PLUS loans from the Federal Family Education Loan (FFEL) Program
• Supplemental Loans for Students
• Federal Perkins Loans
• Nursing Student Loans
• Nurse Faculty Loans
• Health Education Assistance Loans
• Health Professions Student Loans
• Loans for Disadvantaged Students
• Direct Subsidized Loans
• Direct Unsubsidized Loans
• Direct PLUS Loans
• FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)

Should I Consolidate my Loans?

If you have loans with different servicers, then consolidation will ensure one monthly payment instead of several. A Direct Consolidation Loan will reduce your monthly payments by giving you longer to repay your loan. You may extend your repayment time up to thirty years. It may also give you access to income-driven repayment options and the Public Service Loan Forgiveness Program. You may also be able to fix any variable interest rate loans to a fixed interest rate. The interest rate on a Federal Direct Consolidation Loan is fixed.

On the reverse side, a Direct Consolidation Loan may not be right if you do not wish to increase the amount of overall interest you will pay. Because the time to repay will be longer, you will pay more overall interest. You will also lose some borrower benefits such as interest rate discounts, principal rebates, or some loan cancellation benefits. If you are already on track with the Public Service Loan Forgiveness program, you will lose credit for any payments you have already made towards the program.

What are the Requirements to Consolidate a Loan?

In order to qualify for a Direct Consolidation Loan, you must consolidate at least one Direct Loan or FFEL Program loan. The loan must be in the repayment or grace period, which means that you must have dropped below half time enrollment or have graduated. You may not consolidate an existing consolidation loan unless you are including an additional eligible loan. If a loan is in default, you must make at least three monthly payments before it may be considered for consolidation.

Are There Multiple Repayment Options?

No borrower lives in the exact same economic circumstances as another, so repayment options vary. There are multiple plans, including those with fixed payments and income-driven payments. Each one comes with pros and cons. Income-driven plans may be better for those with less employment security. Fixed payment plans generally pay off the loan much more quickly.

How Do I Apply?

The best way to apply is to visit StudentLoans.gov. You may fill out an application online or print and mail in the paperwork. You will need a FAFSA ID in order to login so that you may select a servicer who will contact you and walk you through the process. Continue making payments on your loans before the process is completed to avoid default and ensure a smooth process. After approval, you will have 60 days before the first payment is due.

Student loans can be tricky. For most people entering adulthood, they are difficult to understand. Direct Consolidation Loans are one method to simplify a complex, but important, process. For more information, visit the Department of Education’s information page for Direct Consolidation Loans. Consolidation of your loans may be a great way to ensure that student loans do not damage your credit or your financial future.