Should You Consolidate Student Loans?

Should You Consolidate Student Loans

BIG Ideas:

  • With student loan consolidation, you can combine multiple federal loans into one loan with one payment.
  • Lower monthly payments, fixed interest rates, and simplified repayment are some of the benefits of student loan consolidation.
  • Loan consolidation is different from refinancing student loans, which involves replacing federal and/or private student loans with another loan, typically from a private lender.

The knowledge and skills you gained in college will last a lifetime. If you borrowed money to pay for college, it may seem like your student loans will, too.

You are certainly not alone in having debt or feeling that it will never go away.

With the high cost of college, student loan debt has become a way of life for many graduates. In fact, some 42.7 million student borrowers have federal debt totaling nearly $1.7 trillion, which can put a strain on monthly budgets.

There is a way to get relief from high monthly payments: student loan consolidation.

What Does it Mean to Consolidate Student Loans?

To help student loan borrowers simplify and reduce their monthly loan payments, the federal government offers Direct Consolidation Loans.

A Direct Consolidation Loan allows you to combine one or more federal loans into a single loan to help you potentially lower your monthly payments and access other benefits.

The Pros of Consolidating a Student Loan

There are many benefits to consolidating federal loans. With a Direct Consolidation Loan, you can:

  • Lower your monthly payment. You could potentially extend your repayment term, helping to reduce your monthly payments and free up room in your budget.
  • Get peace of mind with a fixed interest rate. Direct Consolidation Loans offer fixed interest rates. So, if you have variable-rate federal loans, you can get the predictability of fixed monthly payments that make budgeting easier.
  • Simplify loan management. When you consolidate multiple federal loans, you’ll only have one loan with one monthly payment.

The Cons of Consolidating Loans

There are some drawbacks to consolidating loans, including:

  • Longer repayment. Consolidating your loans could result in a longer repayment term, which means you’ll have your loan longer and will end up paying more interest.
  • Accrued interest. When you consolidate your loans, any unpaid interest on your current loans will accrue, increasing the principal balance on your consolidation loan and the interest you pay.
  • Potential loss of some benefits. Consolidating student loans could result in the loss of some benefits, including interest rate discounts, principal rebates, or loan cancellation benefits that may be available with your current loans.

Other Important Things to Know About Consolidation

  • There is no application fee to consolidate your loans.
  • You don’t have to consolidate all your federal loans. For example, if you have a loan that offers benefits you don’t want to lose, you don’t have to include it in the consolidation.
  • To consolidate, you must have loans in the grace period or in repayment. So, you could consolidate your loans after you graduate, leave school, or drop below half-time status.
  • You could consolidate federal loans in default if you make repayment arrangements (three consecutive monthly payments) or agree to pay the Direct Consolidation Loan under an income-driven repayment plan.

How to Determine If a Direct Consolidation Loan is Right For You

So now that you know the pros and cons of consolidating student loans, you may wonder, Does it make sense for me? 

In general, you should consider loan consolidation if you:

  • Have multiple federal student loans and want to simplify repayment.
  • Want to lower your monthly payment to free up room in your budget.
  • Have federal loans with variable interest rates and want the assurance of a fixed-rate loan.
  • Want to take advantage of loan forgiveness.
  • You want to get federal loans out of default.

What’s The Difference Between Refinancing and Consolidating Loans?

If you’re looking for relief with student loan payments, you have another option: refinancing your loans. With refinancing, you can replace private and/or federal student loans with a single loan, usually from a private lender.

Both refinancing and consolidating allow you to turn multiple loans into a single loan with one monthly payment, but there are key differences with refinancing:

  • With a private loan refinance, you could get a lower interest rate, which could help you reduce interest fees.
  • Refinancing allows you to change your repayment term (increase or reduce it).
  • Refinancing federal loans with a private loan may result in the loss of federal benefits.
  • Private lenders may charge fees for refinancing, so be sure to shop around. 

Brazos is Here to Help You Refinance and Save

If you think refinancing your student loans is the best option for you, Brazos is here to help. For more than 40 years, we’ve been helping make education more affordable for students with competitive rates that can help you lower your monthly payments and reduce interest fees. Contact us to learn more.