Should I Consolidate My Student Loans or Refinance?
4 Common Consolidation Questions Answered
When you graduate from college, you’re not alone leaving school with student loan debt. In fact, a 2020 study by Mark Kantrowitz estimates that undergraduates who graduated from college owe about $29,900 in student loans, on average. That number might be a result of taking out several student loans. Juggling all of those loans with different lenders, monthly payments, and bill due dates can be stressful.
If you’re looking to streamline your loans, loan consolidation and student loan refinancing are two options to consider. While the terms are often used interchangeably, they’re actually very different processes, each with their own unique benefits and drawbacks.
We’ve created this article to answer common student loan consolidation and refinancing questions, along with quick links below to jump to each section:
Should I Consolidate My Student Loans?
If you have federal student loans, you may have heard about Direct Loan Consolidation. With this option, you work with your federal loan servicer to combine your current loans into one large loan. There are some benefits to consolidating your loans:
Loans ineligible for loan forgiveness become eligible: If you have older federal loans, they may not be eligible for Public Service Loan Forgiveness (PSLF). When you consolidate them into a Direct Consolidation Loan, those loans may then qualify for PSLF consideration.
Loans ineligible for income-driven repayment plans become eligible: Similarly, some student loans are not eligible for income-driven repayment plans. But if you consolidate them, they qualify for plans like Income-Contingent Repayment or Pay As You Earn.
One of the most practical benefits of loan consolidation is that you have one easy payment. Instead of juggling multiple loans and monthly payments, going forward you’ll have one loan and one payment to remember.
When Should I Consolidate My Student Loan?
If you are not in school or are enrolled less than part-time (perhaps in a post-baccalaureate or non-matriculated program) and if the loan under your name is in a repayment or grace period, you may be eligible for loan consolidation.
Are you having trouble making your monthly federal loan payments due to job loss, under-employment or any manner of personal and professional challenges? Loan consolidation might be a helpful solution. Though the repayment terms may change through consolidation, you may be able to take advantage of short-term savings by having a lower monthly amount due.
You may also be interested in loan consolidation if you’ve recently graduated and want to get a lower fixed interest rate on all your federal loans before your grace period (usually six months) ends. This is a smart way to get ahead of repayment and plan ahead for future financial needs and decisions.
Should I Consolidate My Student Loans More Than Once?
According to the U.S. Department of Education, you generally cannot consolidate an existing consolidation loan, unless you include another eligible loan into your preexisting plan. However, under special circumstances, you can reconsolidate an existing Federal Family Education Loan (FFEL) if:
- You are delinquent or have defaulted your FFEL Consolidation Loan and elect to repay your new Direct Consolidation Loan under an income-driven repayment plan
- You are looking to payday loans Grangeville qualify for the PSLF Program
- You are an active duty service member and want to use the no accrual of interest benefitwhich means you’re not required to pay the interest that accrues during periods of qualifying active duty military service (for up to 60 months) on the portion of a Direct Consolidation Loan that repaid a Direct Loan Program or FFEL Program loan first disbursed on or after