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Learn When It is Not the Right Decision to Student Loan Consolidation

student loan consolidation

Most people who want to have a better future are convinced to apply for high schools to get educated and to improve their skills which they will prove with their diploma later on. Well, of course, education is a very crucial part of our lives, but from the perspective of financial issues, sometimes it can get a bit tricky and challenging, especially if you are a young, motivated, talented, yet an unemployed or a broke student. In this case, you will definitely need to borrow student loan from the government or private institutions to continue your educational life, and it is mostly not a loan, but the loans which make the things worse, since in that case, you will have to keep track of all your debts, interest rates, deadlines, and other bureaucratic documental issues. Fortunately, there is a solution for that which is called student loan consolidation.

Although it is not a solution for the whole debt problem, it is of use when all the payments you owe either to the government or to the private institutions get hard to follow. Now, let’s have a closer look at the student loan consolidation, its advantages, and disadvantages.


What is a student loan consolidation?


student loan consolidation


When you borrow money for your education, you usually receive multiple loans, and when it is the case, it is not as easy as it seems to deal with all the payments on time. To follow all the debts and rates, you have an option to consolidate all the loans you owe, thus, later on, the only thing you have to do is to follow one unified credit which is energy saving. Additionally, you save time by this method and get rid of all the complicated procedures at once, or at least you have to cope with only one confusing process instead of many.

Furthermore, when you are in loan default on any of your loans, by debt consolidation, you get the opportunity to get out of this status. One more benefit of consolidating is that you pay less every month since the repayment period gets longer.

Furthermore, the application for the consolidation is entirely free of charge, which means you do not have to pay a single amount of money to make use of this program. You can click on this Youtube video if you want to get a more precise and quick idea of debt management. Even though this method seems practical, it is not always advisable to apply for it. Under the following circumstances, you better not to combine your student loans under one roof or account in this case. These circumstances might make the idea a kind of a drawback for the students.


Do not consolidate your student loans if


You do not want to pay more interest rates

As mentioned above, one of the advantages of consolidating debts is that it lengthens the whole period of payment from 10 to 30 years. Nevertheless, it brings about a drawback as well. The longer the payment period gets, the more than usual you pay for interests. Besides, the interest rates can be higher when you decide to consolidate financial obligations since the interest rate of the unified debt is the average rate of all the payments in total. In this case, if you owe student loans with relatively high interests, then it is smart not to combine, but to pay the debts separately.

You are in default on any of the loans


student loan consolidation


Student loan default situation is one of the most significant issues to address in this regard, as some regulations apply to this circumstance. If you want to combine all your loans into one, and you are in default on one of them, then here is the thing you have to do: You need to pay three months of debt to be considered eligible for the Federal Consolidation. In addition to that, what you are required to do is that after applying for the consolidation and being approved by the authorized board, then you should make the first payment in a two-months-period. Otherwise, you will not be able to combine your debts anymore.


You want to be able to make use of a grace period

Firstly, what is the grace period?  It is a period after the graduation before which you need to start paying the student loan that you borrowed. However, in case of a consolidation, the point is that you do not own such kind of privilege. After consolidating all the debts, you have to start repayment in terms of the newly set regulations in about 60 working days. The one thing you can do, if you possess a student loan in the grace period, is to mention it in the application form for student loan consolidation and wait until the grace period ends.


You want to apply for loan discharge

It is evident that paying all the debts is not easy at all. Even if you are fully able to pay the loan, unexpected things can happen which would prevent you from paying your debts such as death, loan bankruptcy or disability discharge. In these cases, it is possible that you need to apply for a loan discharge or relief programs suggested by the USA Education Department and regulations of private institutions that you attend.

However, when you want to make use of loan forgiveness in cases as mentioned earlier, and you have already consolidated your debts, then you will face a drawback in this regard. Since you own a new account when you combine the loans with a new contract, you lose the opportunity to count the payments which you made before the student loan consolidation, even ones immediately before the forgiveness application.


You want to benefit from reductions

student loan consolidation


Last, but not least, if you combine your debts you lose the chance to benefit from the reductions. For example, if there are some reductions in interest rates offered for one or two loans separately, but you have already consolidated them into one debt, then you cannot make use of those reduced interest rates. Moreover, military service members have the privilege to pay less interest in terms of the Servicemembers Civil Relief Act. However, in case of a consolidation, they also lose their eligibility for the reduction.


Final Note

It is noteworthy that the regulations above are valid under the USA Federal Law. Private loan consolidation does not differ from its federal equivalent, except the institutions for application and decision-makers vary. Generally, student loan consolidation application is not time-consuming at all, since the formal procedures and approval process take no more than 2-3 months.

Furthermore, it is not deniable that there a significant number of advantages as mentioned before, such as time and money saving (depending on the situation). However, this method is not free from disadvantages either. In brief, if you are in default on loans; you are serving in the military; or you want to apply for a student loan forgiveness program; you want to use the grace period, it is, obviously, not a good idea to apply for the student loan consolidation program.