Student loan consolidations are much like consolidating any other form of finance like a mortgage. It involves taking your debt from all of the current lenders and grouping them and making payments to only one lender. This reduces your monthly payments and can be applied to student loans or parent loans.
The standard period for a consolidation loan is 10 years and this is what you get if you apply for a loan and don’t specify a time-span. It is possible to extend the period up to 30 years with some lenders but this will increase the amount of money you pay over the term of the school loan.
It will have the effect of lowering your monthly payments but only consider this option if you really can’t manage with the monthly payments tied to 10 years.
Advantages
By consolidating you will have more money for other expenses.
You only have 1 company to call, 1 payment to make and 1 set of papers to keep track of.
You can stretch the repayments over anywhere between the normal 10 years up to 30 years.
By consolidating a PLUS loan it is possible to lower the interest rate.
You are taking out a new loan, so the 3 year clock on forbearances and deferments is reset.
It allows you to shop around and find a new lender possibly with better interest rates.
Disadvantages
An increased payment term means that your interest will be higher as you are making smaller payments.
It is normally not possible to consolidate if you are in default with your student loan.
It is usual to have at least $5000 of debt before you can consolidate.
Private loan consolidation will normally require good credit or at least a cosigner with good credit.
If you take out a consolidation loan in a grace period from your previous lender you will lose the grace period as you will have to start payments immediately (there are ways around this however including the grace period loophole and applying for an unemployment deferment or economic hardship deferment).
Perkins loans loose almost all of their appealing features including the 9 month grace period, subsidized interest and the forgiveness provisions.
You can only consolidate you student loan once. It is possible to re-consolidate a normal college consolidation loan but only if you add another loan to the package. Also this does not change the originally agreed interest rate.
Despite the disadvantages it is advisable to seek consolidation of your school finances for any type of student or parent related loan if you have various chunks of debt as it will save you money.
Advantages
Disadvantages