When one consolidate student loans its more like refinancing as one get a new loan, which pays off the old loans. Thus, one end up combining all the monthly payments towards different loans into one combined monthly payment.
Type of student loans that can be consolidated:
You can consolidate pretty much all kinds of federal student loans like Subsidized and non-Subsidized Stafford Loans, PLUS Loans, and Perkins Loans, including most federal loans in default. But be careful, defaulted Direct Consolidation Loans can’t be re-consolidated, so you only get one chance to use consolidation to get out of default.
Reasons to consolidate student loans:
1. Combining federal loans and make just one monthly payment.
2. Lock in a fixed interest rate on variable interest rate loans
3. Getting out of default.
4. You have Federal Family Education Loans, or FFEL (federal loans from a bank or private lender like Sallie Mae) and you want those federal student loans to be eligible for Public Service Loan Forgiveness (since only Direct Loans are eligible).
Downsides when you consolidate student loans:
Despite the above compelling reasons to consolidate student loans, the major disadvantage of consolidation are higher interest cost due to longer repayment period. Also, If you consolidate while you are in school—currently allowed under limited circumstances—you’ll lose your grace period. In addition, if you’re close to paying off your loans, consolidation might not be worth the effort.
Consolidation can get you out of default:
If you’re in default on your student loans, you can’t get new loans to go back to school, and you face severe collection procedures. Consolidation can give you a fresh start. You can consolidate defaulted student loans into a Direct Consolidation Loan and stop collections including garnishments and tax intercepts. Be aware that if you are in default, your balance will go up after you consolidate, because collection fees will be added to the loan.
Consolidating private student loans into a Direct Consolidation Loan:
Private loans are not eligible for consolidation into a Direct Consolidation Loan. Also, one should never and ever consolidate federal loans into a private consolidation loan. Primary reason being federal loans have important borrower protections that will be lost after consolidation with private lender. Also, federal consolidation loans generally have lower interest rates. Only Direct Loans offer federal consolidation loans these days.
Applying for a Direct Consolidation Loan:
The best way to apply for a Direct Consolidation Loan is online. Reason being online loan application to consolidate student loans are processed faster than applications send through mail. Also, one need to extra cautious while sharing the information about the loans that need to be consolidate as wrong or incorrect information can led to delay in processing.
Hope above information helps you in carefully evaluating the Reasons to consolidate your student loans.