If your student loans are becoming too much of a burden, student loan debt consolidation might be the answer.
Consolidation is basically what it sounds like: combining (consolidating) all your loans into one so you can pay them together.
To do this, you apply for a new loan from a financial institution to pay off your outstanding student debt from your existing loans. As a result, you end up with a larger single loan, typically with a lower monthly payment, that you must now repay.
Something to keep in mind: you can’t consolidate federal and private loans together. If you have several of each, you can choose to consolidate them into two groups: one that includes all your private loans and one that groups all your federal loans together.
The Benefits of Loan Consolidation
Most federal student loans have a 10-year limit for repayment, which could be difficult to meet if your loan total is very high or if you’re approaching the 10-year mark but still owe a lot of money.
When you consolidate your loans, you can lower the monthly amount you owe by stretching your repayment period up to 30 years. Be aware that if you’re extending your original loan term, you’ll end up paying more in interest in the long-term, simply because it will take you longer to repay the loan.
However, this might be the only way you can afford to continue paying without defaulting, so the benefit might very well outweigh the negative.
In addition to lower monthly payments, in some cases, the amount you are required to pay might be adjustable based on your income. That means that if you lose your job or switch to a lower-paying job at some point, you can adjust your payments again to ensure that you can afford them.
Another major benefit of consolidating is that you might be able to get a lower interest rate. This can occur when:
How to Qualify
loan debt consolidation is meant for people who are already out of
school. Some companies allow you to take out a consolidation loan if you
are still in school. Yet, your total student hours have to amount to
less than part-time status. Full-time students don’t qualify.
Another point to consider is you have to be current on all your student loan payments in order to consolidate.
If you’ve defaulted or are late paying your debt, you won’t qualify for student loan debt consolidation. Nor will you qualify if you have a small amount of debt left, such as less than $7,500 (some consolidation companies allow slightly lower amounts, such as $5,000).
For information about student loan debt, see the articles listed below.