Student Loan Consolidation – Advantages & Disadvantages

What is Student Loan Consolidation?

A student loan consolidation is a process of combining your multiple student loans into a single, bigger loan, possibly with a new lender.

When this happens, you’ll no longer owe the original loans and since this consolidated loan is new, it comes with a new interest rate, a new payment policy, as well as new terms and conditions.

Student loan consolidation comes with both advantages and disadvantages to consolidating your loans. Choosing to consolidate your loans is an individual decision and the right decision will be based on the specifics of your loans, the types of loans, interest rates, balances, borrower benefits, etc., and also your current financial situation.

Student Loan Consolidation

Advantages & Disadvantages of Student Loan Consolidation

There are different types of loans, most significantly, there’s a huge difference between federal loans (those issued by the U.S. government) and private loans (those issued by a bank, credit union, or other lending institution).

Each of these loan categories comes with its own advantages and disadvantages.

Here are some of the advantages and disadvantages of student loan consolidation:


Better credit, better rates

If you have gotten a great job after graduation. And have been making responsible financial choices. Like keeping your credit card balances low and making on-time payments.  Your credit score may have gone up. If your credit score has improved since you. Initially took out your loans, you just may be eligible for.  A lower interest rate on a new consolidation loan. This is because lenders will consider you less of a risk than you probably were. Obviously, this will depend on your credit history. The rates on your existing loans. As well as the interest rates your new lender can offer you.

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Potentially lower payments

Consolidation may potentially lower your total monthly. Student loan payment with either a lower interest rate or a longer repayment period. However, this depends on the interest rates.  And terms of your current loans and is especially beneficial if you’ve been struggling to. Make payments and can’t qualify for a deferment or income-based repayment plan.

Dodge default

If you are in default, loan consolidation can offer a solution. Since it can possibly lower your monthly payment, based on your loans. However, it may be necessary that you get your loans into good standing before being able to consolidate them.


When you consolidate your student loans, it makes dealing with them less complex, with just one or two monthly payments and one or two accounts to keep track of.

Most sources are of the opinion that you do not consolidate private loans with federal loans. Rather, it is advised that you consolidate your federal loans into one loan and private loans into another. If you keep forgetting to make payments and have difficulty in keeping track of all your different loans, this can keep you organized and help you to avoid missing payments, which can result in late fees or damage to your credit.


Potentially higher rates

Based on your current interest rates and loan amounts, you may actually end up paying higher interest rates which increases the overall amount that you owe. This may result in you paying more on your loans than you would have if you did not consolidate them.

Loss of benefits

You may lose certain borrower benefits if you combine your loans depending on your loans. Some of which are loan forgiveness – where all or a portion of your loan debt can be cleared if you meet certain conditions, flexible or income-based payment options, or deferment.

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Variable rates

When you are consolidating your private loans with a private lender, you may be offered a low but variable interest rate. As opposed to a fixed rate, this implies that the rate may increase over time, and therefore so can your payments.

Longer repayment period

Even though consolidation can lower your initial payment, it can also lengthen the duration of your debt, and may cause you to actually pay more over time.

Eligibility Requirements for Student Loan Consolidation

You are considered eligible to consolidate your loans in most cases if you are:

  • Currently not in school or are enrolled at less than part-time status.
  • If you are currently making loan payments or are within the loan’s grace period.
  • If you have a good repayment history.
  • Where you carry at least $5,000 – $7,500 in loans.

Even though you are not required to meet any minimum for combining debt under the federal Direct Consolidation Loan program, private lenders and loan companies tend to demand a minimum loan balance. Note, however, that you cannot consolidate private student loans with federal student loans. Also, you can only consolidate the loans you hold in your name – what this means is that you cannot consolidate your own loans with that of your spouse or with loans your parents may have taken out to finance your college education.

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