If you have several student loans, you can often save money and streamline the payment process by consolidating them into one loan. Here are some guidelines to consider when determining whether you should consolidate your student loans. In general, people with multiple student loans should consolidate them if:
- You can save money by consolidating. With student loan consolidation, you get a new loan to pay off your existing student loans. If this new loan has a lower interest rate, it can lower your monthly payments and decrease the amount of interest you pay over time. Beware, however, of consolidation loans that increase the amount of time you have to pay back your loan, lowering payments but increasing the cost of the loan over time.
- Your existing loans have a variable interest rate. With this type of loan, the interest rate resets on the same date each year based on a number of factors. Consolidating into a loan with a fixed interest rate makes sense if you can lock in a lower rate, according to U.S. News and World Report. In addition, you’ll have a predictable monthly payment even as federal interest rates change.
- You have multiple federal student loans. It may be necessary to consolidate these loans in order to qualify for certain federal student loan benefits, according to Nerd Wallet. These benefits include income-based repayment plans, in which the monthly payment is based on a percentage of income, and public service loan forgiveness, in which those in public service professions can have the balance of their loans forgiven after a specific number of years.
- You have a cosigner. If you needed a cosigner to qualify for student loan funding, he or she may wish to be released from the loan obligation through refinancing. Consolidation is one way to do this if you have multiple student loans.
In general, you should not consolidate your student loans if:
- Your loans are almost paid off. If you only have a few thousand dollars in student loans or you are within a few years of paying them back, there’s usually no financial benefit to consolidating.
- You can easily afford the monthly payment. If you’re not struggling to pay your student loans, you might want to think twice about consolidating since it can often increase the cost of your loan in the long run.
There’s no one-size-fits-all solution; the decision to consolidate depends on your financial situation, the number and type of loan you have, and your creditworthiness to qualify for a consolidation loan.