Student Loan Consolidation - Refinance Student Loans

Student Loan Consolidation - Should You Do It?

Last Updated: May 26, 2010

Student loan consolidation - should you do it? If you have numerous loans, will combining them or refinancing them be beneficial for you? You must consider several factors. For some it is a great decision, for others, maybe not. The ultimate goal for anybody should be how they can get out of debt as soon as possible to reduce interest charges and stress. The other benefit is once you are out of debt, you can start investing and building your nest egg. Here are some factors to consider when consolidating your student loan.

Advantages to Consolidating Your Loans

If you have too many monthly payments and you are finding it hard to keep track of them, then an obvious benefit of consolidating your loans is the convenience of one payment each month. Late or missed payments have a negative effect on your credit rating and may cause some lenders to increase the interest they charge on your account. By having one payment and setting it for auto payment, you can build a good credit score and not worry if you missed a payment. If you send payments to more than one lender every month, and want the convenience of a single monthly payment, consolidation of your student loans may be right for you.

Another potential benefit is that you may be able to lower your interest rate when you consolidate your loans. The Higher Education Act (HEA) provides for a loan consolidation program under both the Federal Family Education Loan (FFEL) Programs and the Direct Loan Program. Under these programs, a borrowers loans are paid off and a new consolidation loan is created. These programs simplify loan repayment by combining several types of Federal education loans into one new loan. The interest rate may be lower than on one or more of the underlying loans, and this can save you considerable money over the life of the loan. When you decide to consolidate, you should shop for a lender that will provide you with the best terms for your consolidation. This is a very important benefit of consolidation.

In order for loan consolidation to work properly for you in the long term, you must have discipline. If you consolidate your loans and continue to charge on your other accounts, you are digging yourself into a very deep hole. You must consolidate your loan and then focus your effort to paying off that loan as soon as possible. This is difficult in this buy now culture, but mature and money savvy people know they must pay off their debts. Do not consolidate if your goal is to just open up your other accounts so you can use them again. Close your other accounts so you will not be tempted and work hard to pay off your consolidated loan.

Things to do Before You Consolidate Your Loans

Please research the lender! There are many companies out there to choose from, so at minimum make sure they are part of the Better Business Bureau and have a good track record. Read the fine print and know what happens if you are late with a payment, etc. Do your homework to find the best lender for your needs. Here are some other resources:

A good place to start is to go directly to the loan consolidation page at the U.S. Department of Education website: http://loanconsolidation.ed.gov
Know your loans � and whom to call. All of your federal student loans, and who services them, can be found on the National Student Loan Data System. http://www.nslds.ed.gov/nslds_SA/.

Student loan consolidation is a great opportunity to organize your financial life and allow you to focus on debt elimination. You must be disciplined and focused. Student loan consolidation typically makes good sense for most people. Research your options and dedicate yourself to paying off your debt, and you will be on your way to a healthy financial future.

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