Consolidation of student loans

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You’re getting close to graduation and all those loans you took in college are going to come due six months after you graduate. Should you consolidate? Well, the straight answer is: It depends.

What types of Loans are there?

Student loans are cut into two categories: Private loans and Federal loans. A Federal loan is anything loaned to you by the Federal Government. which include PLUS loans, Perkins, and Stafford loans. A private loan is any loan given to you by a bank. Also, after July 1, 2006, Federal loans have had a fixed rate of 6.8%, whereas private loan interest rate has varied but as of 2009, cannot exceed 8.25%. Because the Federal loans have the fixed rate, it is not recommended to consolidate them unless you are having trouble or plan to have financial difficulty making the payments.

Understand that Federal loans have options such as deferment, forbearance, and cancellation that may be lost if you consolidate these with a private lender.

When you consolidate, your new rate will be equal to the weighted average of the loans that you currently have, increased to the next highest 1/8th of a percent. So if your interest rate combined was, say, 6.834%, your loans would be consolidated at 6.875%. The other thing that’s nice is that the student loan company will usually offer you a rate discount if you pay your loans on time for a pre-set number of months, usually 36 or 48 months.

In addition, starting in 2009, students graduating college can opt for an income-based repayment plan. What this means is that the most the student loan companies can charge you is a percentage of your income. the rate is based on the difference between your current income and 150% of the poverty line. If you still have debt after 25 years, it will be forgiven, although forgiven debt counts as income.

What should you consider?

First off, ask around. Call banks or lenders that specialize in private loan consolidation. Ask them what they can do for you and what discounts you can get off the interest rate after a number of payments have been made. Also, always make sure that your loan company does not have a prepay penalty. You want to be able to pay additional upfront if you make more money and save yourself the interest charges.

Always remember there are options. Sites such as,, and, are some of the many websites that you can use to consolidate your loans. Keep in mind: These are going to be the people you may be paying for 10-20 years or longer. Do your research and see what works for you both now and in the future. You want to get the best rates and the best incentives.

Another option to consider is that most states have consolidation programs that will allow you to take your Federal Loans and make them into one big consolidated loan. Think about what benefits they can offer you — if they take 1% off your interest now, it helps a lot more than if they take 1% off your interest after three years.

Consolidating student loans is a good way to take the sting out of your monthly payments, and even though you will be paying more in interest in the long haul, the convenience of having just one payment a month instead of trying to remember whether you paid multiple companies may be worth the hassle that it takes. So explore all your options and find a consolidation program that is ideal for your situation now and in the years to come.


About Zach Younkin

I'm currently enrolled at Western Governors University, pursuing my degree in Accounting. I'm hoping that this blog provides you with some encouragement to be what God has promised you. This blog collects dust, which is unfortunate. Keep your eyes open for some sporadic blog posts. I spend more time on Twitter, so go follow me there. @zachyounkin
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One Response to Consolidation of student loans

  1. Pingback: Make Money Online | College for 10k

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