We all know that when we want to achieve something, we have to work hard, spend most of our time on the purpose that we want to be successful if we are not born lucky. It is not only time that we invest, but we should keep in mind that money also plays a vital role in this regard. High school education is not a “must,” but it significantly influences individuals’ outlook, social network, environment, living standards, and of course future career. However, in the USA, it costs an arm and a leg to study in some high schools, in this case, students sometimes do not have other choices, but to apply for a student loan or even and most probably loans. Before deciding if you want to apply for a student loan consolidation or not, you need to consider some factors, pros, and cons that it will bring alongside.
No doubt, student loans are meant to help students continue their educational life without thinking about financial problems during at least the academic period, however, if you have more than one loan, it can be challenging to follow all your loan accounts, and try to make on-time payments. In this case, student loan consolidation might seem appealing.
Student loan consolidation can be beneficial, but not necessary at all!
First of all, you do not necessarily need student loan consolidation, because most universities have the kind of a system where you can see all your debts in one place which makes the whole process less confusing, and more convenient to use. You need to log in to your university account, and all the loans that you have to pay will appear with the deadlines if it is the only reason that you want to go for consolidation. However, it is not a strong reason for combining your loans. Another reason can be fixed interests, because when you consolidate you have only one credit with an average interest rate of all, thus the tariff does not change during the whole period of payment.
Furthermore, if you want to lower the monthly payment as consolidation lengthens the entire period of payment up to 30 years, then consolidating all the debts can seem utmost affordable, but keep in mind that by that you will not be able to save any money, and you lose the opportunity to make use of some benefits. There are more advantages and disadvantages of student loan consolidation which you can find on this link. If you have further questions before deciding whether or not you want to consolidate your loans, you can go online to the official website of Federal Student Aid and have the contact information in there.
You lose the chance to apply for loan forgiveness
It is worth to mention that if you want to consolidate all of your loans, then you need to know that all your payment history will be deleted, and you will start from scratch. It seems so innocent, but it is not, especially for people who try to apply for student loan forgiveness. As mentioned above, since on-time payment history is one of the solvent issues which decides whether or not the student is qualified for loan discharge, you cannot go for loan forgiveness in case you apply for student loan consolidation.
Meanwhile, If you want to use loan discharge through a company, make sure it is not a scam. Scam companies are fraud companies which promise you to get rid of your loans through forgiveness programs and disappear all of a sudden with the money students paid for the service in advance.
By having a fixed interest rate you determine what the monthly cost is and know for sure that it will not change. On the other hand, you can face higher rates, which will not enable you to save money. For example, if there is a chance for a reduction in the interest and you have consolidated your loans, then you will not benefit from it, and the terms cannot be changed.
If you make use of Parent Plus loans, which is a loan borrowed by one of the parents of the student to support their children for high school financially, and you want to consolidate your loans, including that one as well, then keep in mind that you will lose the access to income-driven repayment.
Additionally, take into consideration that student loan consolidation is a service only meant for the federal loan and do not apply for private student loans. In this case, refinancing can be of more help than consolidating and sounds more rational if you consider its benefits. To make the point more clear, let’s briefly look at the benefits of refinancing.
When you refinancing loans which can involve multiple loans meaning federal and private loans you combine them into one private loan. It means you will have a private lender who determines the terms and interest rates. The general idea of refinancing is that you take a new loan to get rid of the others. If your credit history is good and has made the payments on time, you can even have a lower interest rate compared to the ones that you possibly get while consolidating.
Summary of relevant pros and cons of student loan consolidation
Student loan consolidation is not unnecessary at all if you prefer having all your debts in one place or account with fixed interest rates, extend the duration of the credit and pay less per month. However, you need to take into consideration that in case you consolidate your student loans, all your debts will be removed, and you will get a new loan account which means you will not have a credit history, and thus will not be eligible for loan forgiveness or discharge programs. Moreover, if the interest rates go down suddenly since you will have a fixed interest rate you will not be able to benefit from it.
One more thing, the student who combines college loans and works in public service, loses the opportunity to make use of some interest reductions or even public service loan forgiveness meant for individual public sector workers, and for people who serve in the military if they meet the criteria. Finally, by consolidating you cannot save money at all again because of the interest rates. If you have private student loans alongside federal debts, then you are certainly not eligible for consolidation. However, in that case, you can consider applying for refinancing the loans by choosing and consulting the best tariffs for yourself.
In some cases you still can make use of federal programs such as discharge when you consolidate, but if you refinance you completely lose access to these kinds of programs. Furthermore, for consolidating federal loans, you do not need to go to any third party company and pay for the application fee. You can quickly go to StudentLoans.gov and apply online in less than half an hour. In the end, is student loan consolidation a mistake? We discussed above all the benefits and adverse effect of combining debts and provided information about refinancing. So, it is ultimately your decision.