When Should You Consolidate Student Loans?Posted by Nick Niesen on October 29th, 2010 If you have just graduated from college, the likelihood is that you are under a large amount of debt in the form of student loans. You might be wondering if there is any way to reduce the amount you have to pay. One solution for reducing your debt is to consolidate your student loans. Student loan consolidation is similar to refinancing a house on better terms: although the principal of the loan will not be affected, the interest rates you can lock in when you consolidate student loans to a fixed rate can be substantially better, reducing your monthly payments by up to forty percent. Plus, you might be able to stretch out your payment time to reduce your monthly payment amount even further. The disadvantage when you consolidate student loans during your initial six-month grace period is that you must start making your payments right away. This can be difficult if you have not found a job after graduation, although you can wait until just before the grace period ends to consolidate, and still receive the lower rates. Furthermore, once you have consolidated your student loans, you cannot un-consolidate them again, so make sure to consider your choice carefully. How is Interest Calculated When I Consolidate Student Loans? When Would You *Not* Want to Consolidate Student Loans? Another time to hesitate before you choose to consolidate student loans is when you are close to finishing your payments. Stepping up the payments and saving yourself some interest and the hassle of consolidation might be more advantageous to you. Finally, there are loans that you might want to keep open because they offer special advantages. For example, if you are considering going back to school and you have a Perkins loan, you would not want to consolidate that with your other student loans. The government will pay all interest on Perkins loans while you are in school, but if you have chosen to consolidate student loans, you will not be able to receive this benefit. You could always choose to leave any special kinds of loans out of the consolidation mix, however. Like it? Share it!More by this author |