Managing Student Loans

Anytime after graduation you may consider consolidating your federal student loans. The primary benefit of doing this is to combine individual monthly payments you make to each loan into one more easily managed payment. It is certainly easier to keep track of one payment and have all the terms of the loan under one umbrella, so you know exactly where you stand.

Consolidation would also bring one standard term of repayment, which can be increased from the standard ten years to between twelve and thirty. Unless you really anticipate financial difficulties causing you to default on the loan it is best to keep the term of the loan as short as possible, as the more you extend it, the more it will increase the overall cost of the initial amount borrowed.

Federal student loans have always been the most competitive, with additional benefits. If you choose to consolidate these loans you lose none of those vital benefits, a primary one being that a consolidated student loan is tax deductible against income. There is no credit check to obtain one, no need for collateral, no fees attached, and you have the right to prepay the loan whenever you like without penalties.

Changes have been made within the federal student loan program, applicable to new loans. Once a consolidation loan is signed the conditions apply to the loan and will not change.  Previously private lenders offered to consolidate federal and private loans together, but are now pulling out of federal loan consolidation as it is no longer profitable. It is always best though to consolidate a federal student loan separately to a private one, as benefits are lost by combining the two.

Prior to July 2006 federal student loans were issued with variable interest rates. For those who still have unconsolidated federal loans from that period it is well worth consolidating and obtaining a fixed rate. The rates on fixed rate consolidated loans are fixed for the term of the loan, so there is less need to consolidate them as the interest rate will not change, although you will have the ease of one payment. Unless you require the length of the loan extending there is no benefit from consolidating fixed rate student loans.

If your parents took out federal student loans they may also consolidate them, but you cannot combine the loans of your parents with your own. This is because the loans were issued to different borrowers, and each remains responsible individually for repayments.

As the situation stands now there is no huge benefit to consolidating student loans issued after July 2006, unless a change in the repayment schedule is necessary. It is worth bearing in mind that you may only consolidate the loans once, unless you add a further federal student loan to the consolidated loan at a later date.

If you aren’t sure if it is worthwhile or not to consolidate then you can wait, and determine in the future if consolidating your student loans is the best way to go. If you decide to go ahead then contact the originator of your student loans to ensure you are given the absolute current information.