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Student loan consolidation is a relatively simple concept which refinances multiple federal education loans into one new loan with a new repayment term, monthly payments, and interest rate. But is consolidating right for everyone? Well no, not necessarily.

The Advantages:

Consolidation simplifies record-keeping and payment chores because your loans are refinanced from multiple lenders into one centralized server, so you only ever have to write one check. Consolidating your student loans can also greatly reduce your monthly payment (sometimes by 50% or more); because consolidation lets you stretch your repayment period from the standard 10 years to up to 30 years, depending on the amount of debt. Also, student loan consolidation lets you convert variable-rate education loans into a loan with a fixed (and usually lower) interest rate.

The consolidation website for Salle Mae, one of the nation’s leading consolidation firms (*this is by no means an endorsement, it is just worthwhile information to consider, regardless of your lender), provides some great food for thought on why you might consider consolidation:

• You’re struggling to make ends meet: If you’re having trouble covering your regular expenses, student loan consolidation may free up some money. Consolidation can reduce your monthly payment by about 10%–40% or more depending on your loan balance, the length of the payback period, and the interest rate on your consolidation loan.
• Your credit cards have big balances: You can save money by paying off your credit card balances sooner, even if it means taking longer to pay back your student loan. Your credit card issuer could be charging an annual interest of 18%–22%: That’s more than twice the rate charged on your student loans. In addition, federal tax law permits many borrowers to deduct up to $2,500 each year in interest paid during the repayment of education loans. Interest on personal credit card balances is not tax deductible. What’s more, credit cards are a source of instant cash that can be a lifesaver during financial emergencies, so you should avoid maxed-out plastic.
• Your income fluctuates: If you’re paid on commission or do seasonal work, you might need the safety net provided by a long-term repayment plan.
• You have another worthwhile use for the money: A smaller payment on your student loans may be necessary if you’re trying to get a mortgage, save seed capital to start a small business, or help a family member go to college.

The Disadvantages:

Student loan consolidation can significantly increase your total interest costs, because you’ll be making smaller installments over a longer time. Depending on the loan balance and interest rate, consolidation can double or triple your total interest expenses. Also, if you consolidate during your grace period, it will immediately end and your payment obligation will begin, regardless of your economic standing at the time. Consolidation loans do not have all of the deferments that Stafford loans do. Lastly, it’s not a good idea to consolidate if the interest rate you will pay on your Consolidation loan is higher than the rate you are paying on your current loan(s). This may happen in cases when the Consolidation loan interest rate has been rounded to the nearest one-eighth of a percent (as required) and the resulting rate is higher than the rate on the underlying loans being consolidated, or if you choose to consolidate Federal Perkins loans, which have a current national interest rate of 5% (national consolidation rates are currently around 7%).

I’m still not sure if I should consolidate, who can I talk to?

You can contact your lender(s) or your college financial aid office for more information about consolidation. Or, you can also “do the math” yourself – if you have multiple student loans at different interest rates and want to know what the interest rate will be for a Consolidation loan, there is a Loan Consolidator Worksheet at www.mapping-your-future.org that can help you make that determination. The worksheet also allows you to find out approximately what your monthly payments might be.

Just remember, although you can overpay on any given month if you have the spare cash to do so (*paying more when you can is always advised, as it will reduce the interest you pay in the long run), once your federal loans have been consolidated, the consolidation cannot be undone.

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