Pros and cons of consolidating student loans
According to Edvisors, on average the student loan burden for a student in the 2015 undergraduate class was ,000.
It is believed that this amount is the combination of several loans, because each semester or year students usually take out a new student loan.
This is the consolidation program offered by the federal government, and it will allow you to retain the benefits of your federal student loans, such as deferment, forbearance, Income Driven Repayment, Public Service Loan Forgiveness, etc.
When you consolidate through the federal program however, your new interest rate is a weighted interest rate determined by your existing student loans.
The prospect of fewer monthly payments, lower APR, or freeing up some of your monthly cash flow may help you realize your financial goals.
You might be able to consolidate your federal student loans, which will entail the combination of all or the majority of your federal loans into a new single Federal Direct Consolidation Loan.
This program may help streamline the repayment process, but you won’t see much of a change in your interest rate.
Private student loan consolidation, also known as refinancing, can offer highly competitive interest rates that may be much lower than what you are currently paying.
However, if you refinance your federal loans with a private lender, you will lose the guaranteed benefits of the federal program.
According to Hylland, “There are many cases where it would be worth paying a higher interest rate on certain government backed loans compared to a lower interest rate with a private lender.
Kimberly Schrant, financial coach and CPA, who runs Kansas Money Coach.com, advises, “Everyone’s life is different, so there is not a cookie-cutter approach to this part (or any part) of a personal financial plan.” With this in mind, let’s look at some of the details the pros suggest you consider before you make up your mind.