What should I know about consolidating my federal student loans?

graduation students

If you have multiple federal student loans, you may be thinking about consolidating them into one loan. This can be done by applying for consolidation with no application fee, no credit check, and no need to work with multiple refinancing providers.

But should you consolidate all of your federal loans? Here are five reasons you may be contemplating, and what to consider.

#1. I want to simplify and make one payment per month.

Managing multiple loans can indeed be stressful. Federal loan consolidation will allow you to combine all of your federal loans into one loan. However, some features of your original loans such as grace periods and special forgiveness circumstances, will not carry over to the new consolidated loan.

#2.  I want to lower my interest rate.

With federal student loans, you will not get a lower interest rate. You will get a fixed interest rate based on the average of the interest rates, rounded up to the nearest one-eighth of one percent of the loans being consolidated.

If you have any variable rate loans, you can now lock into a fixed rate that could mean lower interest over the life of the loan. It’s important to look at not just the rate, but look at the overall interest you will pay over the life of the new loan.

#3. I want to lower my monthly payments.

You can lower your payments by extending the term of the consolidated loan for longer than what your current loan terms are. There is no early payment penalty, so you can pay more than the minimum and pay them off early. It’s important to note that the additional payments are applied to any outstanding interest before being applied to your principal. That does mean you will pay more in interest over time.

#4: I want to access to Federal Repayment Plans.

Loan consolidation can give you access to additional federal loan repayment plans and programs such as Public Service Student Loan Forgiveness, or income based payment plans. Consolidation is often a required first step to applying for the programs.

#5. I want to pay off my highest rate loans first.

If your federal loans have significantly different interest rates and you can afford to pay more than the minimum, or you are close to paying them off, consolidation may not work for you. Paying off the highest rate loans first by concentrating additional principal payments towards that loan will save you money in the long run. Consolidating removes that option since you’ll only be making a single payment every month.

Federal loan consolidation may or may not be the right choice for you. Make sure to consider all of these important factors before making your final decision. If you have private loans as well, or think your goals aren’t a good fit with federal consolidation you can read about private loan refinancing here.

Still need help deciding? Chat with a BrightDime coach now.