The class of 2014 has the highest amount of student loan debts. According to a government analysis done by Mark Kantrowitz, publisher of a group of websites about planning and paying for college, Edvisors, the average student has to pay back an estimated $33,000. So, instead of looking back at your college life with appreciation and happy recollection, you would be worrying about how to pay your debt and for how long you would have to struggle with it.
So why not consolidate your student loan? Consolidation is said to make your life easier, especially if you owe money from 5 to 10 separate lenders. Other people, however, would disagree, saying there are negatives to this process.
List of Pros of Consolidating Student Loans
1. Single payment to worry about
In a nutshell, consolidation is one lender, one payment. All your federal loans will be combined into one and serviced by one lending institution. So, instead of several debts, you will only have one loan that will require a single monthly payment. If you have other loans to deal with, student loan consolidation will mean one less problem to worry about.
2. One interest rate
Different lenders are likely to have different interest rates. When inflation happens, each of your loan has to be adjusted, which can be stressful, especially if you think about the changes in your repayments. When you choose to consolidate, interest rates on all your loans will be averaged and then rounded up to the nearest 1/8 of 1%.
3. Lower repayments
Through consolidation, you have a chance to get reduced interest rate and lower your monthly repayment. This is because your loan terms can be extended from 10 up to 30 years. Who doesn’t want an affordable loan that you can repay as you go along in life? Know though that longer payment terms may mean higher interest rates.
4. Better deferment or forbearance options
A federal consolidation loan will be considered a new loan, which means you start from square one in terms of deferment and forbearance for up to 3 years. You can even delay paying for up to three years, if you apply for unemployment or economic hardship deferment, in the event that you are still unable to find employment.
List of Cons of Consolidating Student Loans
1. Only available for federal student loans
If you borrowed money from private lenders or institutions, you can’t take advantage of the federal consolidation loan program that has a more affordable interest rate. The good news is there are now private student loan consolidations available, but you must have a credit score of 50 to 100 points, or more, to be eligible.
2. Loss of certain benefits
Whatever benefits that came with your student loan, you will likely lose when you consolidate. Take for instance Perkins Loans. When it becomes part of Federal Consolidation Loan, a teacher will lose the option to have 100% of her loan canceled, if she meet certain conditions. Can you imagine giving up a potential 100% loan cancellation?
3. Loss of grace period
Typically, you only start making repayments six months after your loan was released. When you consolidate your student loans, however, you will lose this particular benefit, since you have to start paying two months after consolidation is approved.