13 Sep 3 Tips to Learn Whether Student Loan Consolidation is a Good Idea

Two events occur simultaneously in the financial aid world during the fall. On one hand, come October 1, high school seniors gain their first insights into the world of financial aid as they start completing the FAFSA. Recent college graduates, on the other hand, who already lived through four years of FAFSA filing, are now getting their first look at repaying any student loans that helped cover some of their costs.

If you borrowed money for college through federal or private student loans, you will soon begin receiving payment due notices. Before that happens, take some time to research your options and map out your best plan of approach. What you do now could affect your financial future for the next ten to twenty years, so you want to be sure you make the best possible moves now. One action you can take is to consolidate your student loans. Your federal student loans can be consolidated into a Direct Consolidation Loan, and you might be able to gather up your private student loans into one payment source as well. While this can certainly make it easier to keep track of monthly payments, here are three tips to learn whether loan consolidation is really a good idea for you:

• Think about the total amount of money you will pay: Many graduates like to consolidate their loans because it lowers the total amount of money they are laying out every month. While this can help balance a budget in the short term, the flip side is that payments are usually extended over a much longer term. In the end, this may cause the student to pay more in accumulated interest than dealing with the initial pain. Take a hard look at your budget to decide what you can really afford.

• Are you working toward loan forgiveness? If you are working at a job which might qualify you for Public Service Loan Forgiveness, you are required to make loan payments for a certain number of years before becoming eligible. Consolidating your loans could cause you to lose credit for any payments you have already made toward this program. If you are just starting out, this might not be too hard to handle, but it could be significant if you have been working for a year or two.

• Will your income increase over the next few years? Some students make decisions based on their current income, but don’t look into the future. If you are on a career path that will significantly increase your earning power over the next few years, look closely at the income-driven repayment plans before deciding on consolidation.

If you consolidate your federal loans through a private source, you could lose some of the options currently available to you. Check first to see if you are eligible for deferment or forbearance before proceeding.