The Pros And Cons Of Student Loan Consolidation

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Messy Desk

Are your loan bills in there … somewhere? Consolidation could make it easier for you to keep track of them.

If you graduated in May, you probably went into repayment for most of your federal student loans last month. Making payments may be new to you, but perhaps you’ve already identified some problems you have with the process. (Besides the “parting with your money,” that is.)

If you’re having trouble staying organized or are worried about missing one of your five loan payments, I have an answer that may make your life easier, my friend: consolidation.


When you consolidate, you essentially take out a new loan that pays off all of your other loans. This makes life easier because you only have to make one payment to one servicer for your federal student loans.

And while that’s a great help to many, consolidation can come with many cons to balance out these pros.

You May Pay More

Consolidation makes your repayment term much longer. That decreases your monthly payments but likely increases how much you pay overall (as you pay significantly more in interest over the lifetime of the loan).

If you are going to consolidate, I recommend doing it during your first year or two of repayment; otherwise, it might not be worth it. Remember, this is a new loan, not an extension of your older loans. So, the longer you wait to consolidate, the longer you will pay off your student loans.

Your Interest Rate Won’t Change

If your loans have variable interest rates, consolidation will lock your loan into a single rate for the rest of your repayment term. That is great if the rates go up. Unfortunately, if the rates go down, your loan will be more expensive than it would have been otherwise.

You May Lose Some Benefits

Some benefits, such as some Perkins loan forgiveness programs, are lost once you consolidate those loans. Other perks, like Public Student Loan Forgiveness, you may gain access to through consolidation.

It’s important to know all these details when you make your decision, because you can’t undo a Consolidation loan once it’s in place.

Still Interested?

Now that you’ve thought about this decision, let’s talk about how to go about consolidating federal student loans.

As of January 1, 2014 (2014 already?), there will be a new site for you to use: After the first of the year, anyone who wants to consolidate federal student loans that are not defaulted (you folks will still use the old site for the time being) will use that site.

What’s great about the new process is that it links up with the National Student Loan Data System (NSLDS®), which keeps tabs on all of your federal student loans. The new site automatically pulls all of your student loans into your Consolidation loan, so you don’t forget to include any. (Thank you very much, NSLDS!) To keep a loan out of your consolidation (like a Perkins loan, for instance), you would have to consciously remove it.

Another advantage to the new process is that you may choose your servicer from the list of current Direct Loan servicers: Sallie Mae, Nelnet, Great Lakes, and PHEAA. So, if you’re happy with one of these servicers already, you could stay together.


In the end, consolidating may help you.

On one hand, you’ll only make one payment per month, your payments may go down, and it may make you eligible for loan forgiveness. On the other hand, your loan will likely become more expensive overall and you’ll pay it off over a longer period of time.

Keep all of this in mind before you sign the dotted line.

Have a question about consolidation? Leave it for Ashley in the comments.

(Photo: Ali West)

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