Pros and Cons of Student Loan Consolidation


Educational cost grows more and more every year. But using student loans to pay for could cost you a whole lot more. Sometimes there is no other option other than a student loan and usually is very high. That is a huge crowd that you will take home from school and it’s important to know how to minimize the damage.

Thanks to 6 month grace period you have time to develop a plan and dealing with them. One good strategy can be choosing a Federal Direct Consolidation Loan program.


It is not unusual to owe money to 7-10 separate lenders. This number can be higher if you have a combination of private and federal loans.  If you continue borrowing for graduate school, it’s easy to add another 3-6 lender to the mix.

The major problem of these student loans is that each has its own dates, payment amounts, and interest rates. It’s very complicated to keeping track of that many payments. This is the reason why  8 million Americans have defaulted on over $130 billion in student loans.

Because of this student loan consolidation appears as such an attractive solution. But before you consider this approach you should know some things.

The simple definition of loan consolidation can be – one loan, one payment, one lender.

It’s simple, efficient and practical, but there are some negatives, not the least of which is that you could end up paying much more in interest by the time you’re finished.

Pros of Direct Loan Consolidation

  • One payment.

As we mention before student loan consolidation means combining all your federal loans into one. The new loan will be serviced by one lending institution and requires one monthly payment.

One more way to save money is to pay your bills through the mail. This little habit will save some money on stamps and envelopes. Also, this will save you a lot of time and aggravation.

  • Avoid default.

With consolidation, you are able to change the terms and lower your monthly payment. If you are struggling to make your payments each month, this should help to avoid default. But, If you default, your credit score will take a major hit. This will remains on your credit report for seven years.

  • Fixed interest rate.

If you have multiple loans, you probably have a lot of different interest rates. After consolidation, you will get a fixed rate for the life of the loan.

When we talking about student loan consolidation the interest rate is based on the average of the interest rates on all the loans being consolidated, rounded up to the nearest one-eighth of 1%.

  • Lower payments.

Consolidation will give you a possibility to extend the terms of the loan from 10 years to 15, 20 or even 30 years. Terms will depend on repayment plans that you choose.   The monthly payment can be lower as much as 50% on longer-term. This will make the loan more affordable. It’s also possible to get reduced interest rates. All this will reduce your monthly payments. while you get going into the working world.

  • Multiple repayment plans

Borrowers are free to choose the plan that best suits their situation. So, they can choose a number of repayment plans. At any time borrowers are free to switch repayment plan.  

Repayment plans for Federal Consolidated Loans include:

  • Standard (10 years),
  • Extended (25 years),
  • Graduated (start low, increase every two years for between 10 and 20 years)
  • Income-based (10-15% of your discretionary income).
  • Deferment/forbearance options increase

Direct Consolidation Loan is a new loan, so it will restart the clock on deferments and forbearance for up to three years. In case that you have a problem to repay a Federal Consolidation Loan, because you are unemployment or economic hardship deferment, you have an option to apply for unemployment or economic hardship deferment and delay paying for up to three years.

  • No minimum or maximum.

You are not limited.  There is no minimum amount to qualify and no maximum amount that can be consolidated.

  • Protecting credit.

Consistent payment has a positive impact on your credit score. On the other hand, missing just one payment will hurt your credit score. Consolidation repayment will ensure you one bill per month instead of 10-15. And with one payment you should lessen the chance of negligence. As we mentioned above, avoiding default will help protect your credit score as well.

  • Automatic debit.

Set up an automatic debit from your bank account to pay the bill every month. Especially, If the only reason you’re consolidating is that you can’t keep up with monthly payments to multiple lenders Just be sure that account is well funded every month. Set autopay and be done with it.

  • Loan discount.

If you set up an automatic debit,  some banks will offer discounts on your interest rate. And after 36 months of on-time few will offer 1% discounts on interest rates as long as the on-time payments continued.

Cons of Student Loan Consolidation

Here are cons to consider before choosing:

  • Pay more in interest over time.

When you decide to consolidate your student loan you, at the same time you agree to extend the loan term. So, If you consolidate and extend the loan term, you could pay a lot more in interest. A long-term repayment period can affect a lot of things in the future. For example: If you’re still paying a student loan for 20-25 years, it could hinder or even block opportunities to buy a home, invest in a business, relocate to a new city or even purchase a new automobile.

Think about your future: Pay off the loan as quickly as possible! This will save a time and money. It’s as simple as that.

  • Rounded-up interest rate.

To the weighted average interest rate, direct loan consolidation adds one-eighth of 1%. The new rate is determined by a weighted average of all the other rates, which considers the amount owed and adding 0.125%. If your larger loans have a higher rate, then the weighted average will be a little higher than a simple average.

  • No private loan consolidation.

Student loans from private lenders or institutions can’t be part of the Federal Consolidation loan program. On the other hand, certain private lenders allow loan consolidation that could include federal loans. You can expect that interest rates will be much higher on private consolidations.

  • Lose some benefits.

If you meet certain requirements, some federal loans, (notably Perkins Loans) have loan cancellation. So be careful, research first and don’t hurry with your decision. Because with consolidation you can lose this benefits.

For example:  If they meet certain conditions. police, firefighters, and teachers can have 100% of a Perkins loan forgiven. But, if the Perkins loan becomes part of a Federal  Direct Consolidation Loan That opportunity could go away.

So one more time-  Read all the terms and conditions of your loan before consolidating.

  • Lost “grace” period

Users of  Borrowers typically get a six-month window before having to start repaying student loans. When you choose to consolidate your loan this benefit goes out the door. Instead of 6 months of the grace period you, you typically start paying two months after your loan consolidation is approved.

  • Lender benefits gone.

If borrowers meet certain conditions, some lenders give reduced interest rates or principal reductions. With consolidation, you create a new loan with its own rule and benefits, so previous benefits will be lost.

  • No do-overs.

Only one time you can consolidate student loans. So, If interest rates fall after you consolidate, you’re stuck with the interest rates you agreed to during consolidation.

Student loan consolidation doesn’t have some hard and fast rules, other than be sure to do your research. This is mandatory. You need to do a research to see if this option best suits you.

As we mention consolidation is a great option to make your payments more manageable and maybe even save some money. However, in the long run, it may end up costing you more money.