student loan consolidationIt’s one of life’s biggest milestones: Standing in cap and gown, diploma in hand, four years of hard work rewarded with a degree that opens up innumerable career opportunities. The future is wide open after a college or university graduation. It also means the responsibility of paying off student loans used for tuition costs.

For new grads or those in their first post-college job, student loans can become problematic when your finances are still growing. Left unpaid, student loan debt can grow into the tens and hundreds of thousands of dollars, leading to other money problems down the road. It can affect your credit, and even your future employment.

With student loan consolidation, combining several loans into one simple plan can simplify your financial life without having to keep track of different due dates, interest rates or borrowing terms.

How to Consolidate Student Loans

Just like other forms of loan modification (think credit card debt consolidation, or mortgage refinancing), to consolidate student loans, a borrower takes out one brand new loan that consolidates, or brings together, all their existing forms of debt, at a new interest rate, new terms and one payment.

What student loans qualify to consolidate? Federal student loans do — subsidized and unsubsidized Stafford loans, or PLUS and Perkins Loans, can all be consolidated. Defaulted loans can also be consolidated, too.

Student Loan Consolidation Pros

1. Better student loan consolidation rates. Apart from the overall benefits of consolidating, doing so can make your interest rates more manageable. As a student, say you took out three different loans, all with variable interest rates — by combining them into one loan, you can opt for a fixed rate that never changes or fluctuates. Like a car or fixed mortgage loan, that means you can anticipate the same payment each month. Plus, it means removing the responsibility of a co-signer if a parent or relative signed on your original loan(s).

2. Payment caps. Just like fixed rates, you may qualify for income-based repayment plans which place a cap on how much you’ll owe monthly on your loan, based on how much money you earn. This is ideal for the recent college grad in an entry-level position; according to Forbes, the income-based rate is the difference between a person’s gross income and 150% of the federal poverty level.

Cons of Student Loan Consolidation

1. Longer repayment/higher overall interest. Loan consolidation often means stretching out terms to make repayment cheaper. However, this prolongs how long it will take you to pay off your loan, which also means you’ll pay more interest in the long run. U.S. News says that students who consolidate also lose their loan grace period. Your best bet is to wait until you’ve graduated and examine all your alternatives — including deferment and loan extensions — and seek consolidation as your last option.

2. Private student loan consolidation. U.S. News also cautions borrowers against consolidating your federal student loans into a private consolidated loan. Doing so will cause you to forfeit many of the protections that come with federal loans. Additionally, private loans carry higher interest rates.

Student Loan Consolidation Alternatives

Financial guru Suze Orman offers up some wise words if you don’t want to pursue student loan consolidation:

“If you have a solid job and a solid credit score, think about looking into a personal loan at a bank or credit union. You might not be able to score a deal for the entire amount, but if you can get a fixed-rate personal loan to pay off some of the variable-rate student loan debt, that will offer you more stability.”

Staying frugal, organizing your finances and creating a budget is also another way to quickly pay off your student loans without opting to consolidate them. Even if you do decide for loan consolidation, these simple financial disciplines are essential towards paying off your debt if it’s five loans, or simply just one.

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