Federal Student Loan Consolidation 101

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Have you taken out multiple federal student loans to pay for college? If you have more than one student loan, chances are you are also juggling more than one monthly payment with a range of interest rates.

One strategy for simplifying your federal student loan repayments (and reducing your monthly payments) is student loan consolidation.

Student loan consolidation allows you to reduce multiple loan payments to a single monthly payment. Specifically, a direct consolidation loan consolidates multiple loans you have from the federal government. Loan consolidation can also lower your monthly payments by extending the repayment timeline of your loan, giving you up to 30 years to repay your debt.

While student loan consolidation sounds simple way to trim down your debt payments into one lower monthly bill, consolidation should be approached with careful consideration and research.

Here are three things you must know before you consolidate your federal student loans:

  • Find your loan servicer and check your balance. The first step to determining if you should consolidate your student loans is to check your current loan balance(s) and monthly payment requirements. You can do this by reviewing your original loan documents, checking your student loan account online or contacting your loan servicer. Visit the National Student Loan Data System to find your federal student loan servicer. Your loan servicer will also be able to walk you through your consolidation options.
  • Decide if lower monthly payments are worth a longer repayment period (and paying more money in the long run). If you decrease your monthly payment now, you’ll increase the amount of time it will take to repay your loans. This means you’ll end up accruing more interest on your debt and paying more money in the long run. If you can still afford your current monthly payments, you may not want to consolidate your loans. However, if you want to lower your monthly payment but do not want to consolidate, consider re-evaluating your personal budget or your student loan deferment or forbearance options.
  • Determine any borrower benefits you might lose by consolidating. Your original loan terms may offer you certain discounts and benefits, like interest rate discounts and loan cancellation benefits. These benefits can reduce the cost of your loan repayment in the long run. If you consolidate your loans, you may lose some of these benefits.

Looking for more great resources on student loans? Check out these top banks to refinance student loans in 2020!

About Stephanie Halligan

Stephanie is the founder of The Empowered Dollar, a site dedicated to helping millennials to fix their finances and find their stride in money and life. When she's not blogging, Stephanie is designing school curricula and online games to teach students about smart money management.

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