5 Reasons to Consolidate

If everyone knew the benefits that follow a student loan consolidation, a lot more student loan borrowers would have already had one done. 

There are so many benefits that come with consolidating your student loans. Some benefits will take effect right away, while others will take time before they are applied.

Each situation is different, so everyone won't have the same degree of benefits, but in most cases, you will be in a better position by consolidating your loans, rather than keeping them separate.

What is Student Loan Consolidation?

Before deciding if a consolidation is right for you, let's go over what a consolidation really is.

In general, a consolidation is combining several debts into one.

When you consolidate your student loans with the Department of Education, they will pay off all of your loans and then reissue a new loan for the total amount. 

A federal student loan consolidation is often confused with a private student loan refinance. Refinancing student loans under a private bank will void all benefits associated with federal student loans. (ie. deferment, student loans forgiveness, etc.)

Benefits of Student Loan Consolidation:

1 - One Servicer

As you may already know, consolidating your student loans will combine all of them into one loan. The best part about this is that your new loan will only be assigned to one servicer. So, no more trying to keep up with paying several different companies. 

As you may already know, consolidating your student loans will combine all of them into one loan. The best part about this is that your new loan will only be assigned to one servicer. So, no more trying to keep up with paying several different companies. 

2 - One Payment

The average student will receive two student loan disbursements per semester. So it's easy to see how one can accumulate a collection of loans by the time they graduate. Since the loans are taken out at different times, they will have changing interest rates. By consolidating, you will lock in one fixed interest rate and as a result, pay off the loan sooner.

3 - Student Loan Forgiveness

When you consolidate your student loans, the Department of Education pays off your loans and then they reissue a new loan for the total amount. That new loan will be a Direct Loan.

Direct loans qualify for a much lower student loan payment, shorter loan term, and student loan forgiveness. 

4 - Prevents Default

Student loan default sucks. The consequences include a huge drop in your credit score, wage garnishment will subdue your paycheck, and you can have your taxes taken until the loans are paid back in full.

Getting out of default on federal student loans can be hard, but not impossible. On one hand, you can complete a 9-month rehabilitation program - 9 consecutive on-time payments. On the other hand, you can consolidate.

Consolidating your student loans will clear these negative consequences in as little as 60-90 days. 

5 - Credit Score Boost

After consolidation, the tradelines on your credit report are combined into one and every loan will be brought back to good standing. Once the delinquent or defaulted loans stop reporting, there is a significant boost in the borrower's credit score. The amount of change in someone's credit will vary based on the pre-existing status of the loans.

Conclusion:

The benefits above make consolidation an essential part of managing your student loans. Contrary to popular belief, consolidating with the department of education is 100% free and the process is really simple.