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Student Loans : Student Loan Consolidation Guide

Consolidating Student Loans

Student Loan Consolidation Guide Step 3: Disadvantages of Consolidating Student Loans

    Consolidating student loans can be a wise decision for many students and parents. In many ways consolidating student loans can make managing and repaying your debt easier and less stressful. However, in some situations consolidating student loans can cost you more money and increase how long it will take you to become debt free.
     Always carefully look into what type of loans you have and how they are affected by consolidating. If you aren't careful, you could miss out on having a substantial amount of your student loans forgiven or even having your entire debt canceled. Here is the information you need to know and what you should look out for before consolidating student loans.

You Can Lose Government Forbearance and Deferment: If you had qualified for a government forbearance or deferment, which postpone having to start paying off your loans, consolidating student loans will cause you to loose it. You will have to start paying off your consolidation loan within 60 days of its disbursement ("Loan Consolidation"). However, some private consolidation loan companies offer deferment and forbearance options for their consolidation loans. If you need to delay your payments, make sure you find a private consolidation company that offers forbearance and deferment options.

No Longer Eligible For Cancellation and Forgiveness: Some federal student loans are eligible for cancellation and forgiveness. For example, if you have a Perkins Loan and get a job teaching at low-income public schools, join the Peace Corps, sign up for military duty or enter a career in law enforcement, you can have some or all of your student loans forgiven (Orman). Consolidating student loans would make you ineligible for such benefits. So, before consolidating student loans, make sure you won't be missing out on having your student loans reduced or cancelled.

Increased Number of Payments: Often, consolidating student loans reduces your monthly payments. While that may be helpful, the tradeoff is that you must make many more payments. The longer it takes you to pay off your loans, the more you will have to pay. Sometimes the extended terms of consolidation loans can even double the amount of interest you will end up paying ("Loan Consolidation"). So, only take as much time as absolutely necessary when selecting consolidation terms.

Lose Prior Incentives: Student loans can have their own incentives, such as a 0.25% interest rate reduction for enrolling in a direct debit program or 1.5% reduction for 36 on-time payments in a row. However, consolidating student loans will result in a loss of all the benefits of your original loans (FinAid). That happens because your original loans are completely paid off by your new consolidation loan. Because your old loans no longer exist, neither do the benefits. So before you consolidate, make sure you won't be losing more than you gain.

What if Interest Rates Go Down: Locking in a fixed interest rate can be a benefit to consolidating student loans, but if your rates are currently high, locking them in will doom you to many years of high interest payments. If interest rates are likely to go down in the future, it may be wiser to not consolidate your student loans until the rates do drop. Even a few percentage points can make a big difference in the amount of money you have to pay. For example, imagine you had a $20,000 consolidation loan that you had to pay back in 10 years. If you consolidated when rates were at 7.0%, you would pay $7,745.20 in interest. But if the interest rates dropped to 5.0% by the time you consolidate, you would only pay $5,455.60 in interest. That's a savings of $2,289.60. Make sure you're not going to kick yourself later if interest rates do go down significantly.

    Make sure you know exactly what you are getting into before you commit to anything. Consolidating student loans isn't right for all people. In fact, it may cost you more money in the end. However, despite those drawbacks, if you have student debt, you should at least look into consolidating student loans because there are many benefits. To help you weigh the costs and benefits of consolidating student loans, go to Step 4: Benefits of Student Loan Debt Consolidation.

Student Loan Consolidation Guide Sections:


FinAid. "Frequently Asked Questions about Consolidation." (accessed August 7, 2006).

Orman, Suze. The Money Book for the Young Fabulous and Broke. New York: Penguin Group, 2005.

US Departmane of Education. "Loan Consolidation."
consolidation.jsp?tab=repaying (accessed August 7, 2006).