To Consolidate or Not? 5 Reasons to Slow Your Roll

October 10, 2013

If you’ve got a passel of different student loans, you may be considering a consolidation to make it easier to keep track of your balances and payments. Some students may take as many as three to four different loans per year and graduate with 12-16 separate loans. This can make the whole student loan balancing act more complicated, but before you jump into a consolidation, slow your roll and consider these five reasons you may want to keep your debt as is…

#1 Interest Rates Can Be Higher

Each of your loans will have different interest rates. Some will be lower and some higher. Depending on the mix of rates, consolidating can result in a higher overall average rate and more interest paid over time. To get an idea of what the impact would be and whether you would end up paying more put your loans into a consolidation calculator and check out the impact.

#2 Beware a Private Consolidation

If you have a combination of public and private loans, you should know that you can’t consolidate the two under a federal consolidation. You can consolidate them together under a private consolidation loan but then you lose benefits such as the ability to enroll in Income Based Repayment or participate in forgiveness programs.

#3 Benefits May Be Gained (or Lost)

Certain loans are eligible for forgiveness but if you consolidate them in with loans that aren’t, you could lose this benefit. Conversely, some loans that are not eligible for forgiveness or certain repayment plans can become eligible if you roll them up in a federal consolidation. For instance, consolidating Parent PLUS loans in with other loans can make you ineligible for IBR.

#4 May Be Your One Shot to Rehabilitate

One time when consolidation may be worth considering is if your loans are in default. You may be able to rehabilitate your loans by consolidating them to get a fresh start that can qualify you for an affordable payment plan such as IBR. Depending on your circumstances, you may or may not have to make some good faith payments to qualify for a consolidation. You need to talk to your loan servicer for details.

Student loan consolidation

Image source: PayMyStudentLoans.com

#5 Limits Your Payoff Strategies

One of the things we recommend is getting aggressive with your loans to pay them off more quickly. You can devote spare cash to your highest interest loan to fast track it for payoff. You can then target your next highest loan for payoff. This strategy isn’t feasible with a consolidated loan. You can still make additional payments on your consolidated loan to try and pay it down faster, but if your interest rates increase from the consolidation, you may be in a worse position.

The bottom line is that unless you are gaining something from consolidating, you should slow your roll and rethink. If the only upside is having one combined payment go out each month, this should not be enough to entice you. Keeping track of all of your individual loans is made simple when you sign up for Tuition.io’s free student loan management tool – no consolidation necessary! Also peruse our blog and student loan help center for tips, strategies and news on all things student loan related!