Student Loans


Consolidating Your Student Loans

Most college students get student loans every year they’re in school—often more than one loan per year. By the time you graduate, this adds up to substantial monthly payments to a dizzying array of lenders. All the different rates and repayment schedules can even make a Math major squirm.

To simplify your life and hopefully lower your interest rate, you should consider consolidating your loans. Loan consolidation means getting a new, bigger loan that pays off all of your smaller loans so you only need to make one monthly payment on the new consolidation loan.

Loan consolidation is not necessarily an all-or-nothing proposition. You may not be able to consolidate all of your loan (particularly if they are a mix of federal and private). Or, you may choose to only consolidate a few. Whatever loans you end up consolidating, the new interest rate will be an average of the old ones, weighted according to the size of the individual loans.

One other great thing about consolidation is that it often results in getting a fixed interest rate. If you expect interest rates to rise in the future then getting a fixed rate is a good move.

Government Raises Interest Rate

In January 2006, Congress passed the Deficit Reduction Act of 2005. With this legislation, student loan interest rates will be raised on July 1. The rate for Stafford loans will jump from 4.7% to 6.8%, and PLUS loans will have a fixed rate of 8.5%

Additionally, the rules on consolidating loans will change. Some loans that can currently be consolidated (Direct Loans and FFELPs) will no longer be eligible.

If you already have student loans, evaluate your options and, if you decide to consolidate, do it before July 1 to lock in the lower interest rate.

The Pros and Cons

Why consolidate your loans? The benefits include:

  • Getting a low interest rate locked in,
  • Making monthly payments to fewer lenders, and
  • Choosing from flexible payment options.

However, consolidating loans may not always be your smartest move. Potential drawbacks include:

  • Getting a high interest rate locked in. You can only consolidate once, so if you do so and the rates go down, you’ll lose out.
  • Losing forgiveness options on certain loans, and
  • Increasing overall interest by stretching out the repayment period.

How to Get Started

If you’re interested in consolidating your loans, the first thing you need to do is find out whether all your loans are eligible for consolidation. Speak with one of your university’s financial aid officers or your lenders. Visit SallieMae, Nellie Mae, or FinAid! for more information on loan consolidation.

Check out the next section on Repaying Your Loans. Click next.

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