Undeniably, there are certain benefits to consolidating your student loans. The greatest benefit is having one convenient monthly payment to worry about. If your credit is in a good position, you will even be able to secure a lower interest rate on that consolidated student loan through refinancing. However, what most debt management services won’t tell you is that student loan consolidation also has its negative aspects. This isn’t a smart move for everyone and we will tell you why you might be better off leaving your student loans as they are.
Consolidated Students Loan Payment Plans Are Not Flexible
Your student loans come with incredibly flexible payment plans that can help you as you go through periods of low income. For example, government student loans allow you to choose between a 10-year repayment option or even a payment plan that is based on your specific income, also known as pay as you earn. Consolidating your loans will definitely eliminate these flexible options. You will be stuck with one lump sum payment that you must stay current on in order to prevent yourself from defaulting. We want to keep the monthly amount as low as possible as you are working your debt-free plan. There is no need to pay extra on this until we get to it with our debt snowball method. Just pay the minimums.
Say Goodbye To Loan Deferment or Forbearance
Federal student loan programs are incredibly forgiving and understand the difficulties associated with making your loan payments. For this reason, they offer you options like a loan difference or forbearance. However, consolidating your student loans with a private lender will often eliminate this opportunity. Essentially, this takes away many of the benefits federal student loans come with. Debt management services may neglect to tell you this in an attempt to secure your business. You can only use debt consolidation once with student loans. However, there are times you will want to use this method. We’ve seen people who have no opportunities left to use loan deferment or forbearance, so student loan consolidation is the only solution at that point.
Your Student Loan May Have A Better Interest Rate Than You Will Find Anywhere Else
Student loans were designed to offer students incredibly low-interest rates irrelevant of your credit situation. This means that by consolidating your loans, you may discover that your interest rates will go up. Although your monthly payment will go down by consolidating, your loan term will be extended at a higher interest rate. Essentially, this means you’re paying less money every month and more money to the lender in the long run.
You Will Not Be Able To Selectively Repay Your Loans
Student loans give you the ability to selectively decide which loan you want to pay back first. This means that you can start paying on the lowest balance and move up as your income increases. However, consolidating your loans will eliminate your opportunity to select which loan you will pay first. Many students find that they enjoy the ability to pay down the lowest balance value rate loan first, as we teach in our debt snowball method. After consolidating your loans, you will discover that private lenders do not offer this option.
Take the above facts into consideration before consolidating your loans. Certain debt management services may sell you on the fact that you will have a lower monthly payment you can afford. They may actually be working for a private lender, so be careful with who you accept advice from. Always do your research first and understand the fine print in any loan consolidation agreements before signing them.