1. Easier Repayment
If you have loans from many different lenders, staying on top of your payments can be tough. Consolidation can help to streamline the repayment process, so you only need to send one check, to one lender (two if you have both federal and private loans).
2. Better Discounts
Many lenders offer student loan discounts for a variety of situations. Discounts can include interest rate reductions for setting up automatic payments, or even for being a current customer of that bank. If your loan does not have any incentives like this, then consolidation may save you some money.
3. More Repayment Options
Did you know that Parent PLUS loans aren’t eligible for all repayment plans? One way around this is consolidation. By consolidating your loans, you can sign up for a variety of repayment plans, including plans your current loans may be ineligible for. Plus, if you’re looking into Public Service Loan Forgiveness, you’ll need to be on a repayment plan with a term of more than 10 years to ensure you have a loan balance left to forgive.
4. Lower Monthly Payments
With a consolidation loan, you have the opportunity to lengthen your repayment term, which lowers your monthly payment. For example, if you have a $20,000 loan, with a 10-year term at 6.8%, that’s $230 per month. By paying this loan off over 20 years, you would pay $152 per month.
Be careful though! Just because monthly payments are lower doesn’t mean you’re saving money. Increasing a repayment term also increases the amount of interest you’ll end up paying in total. While consolidation is a great option if you’re strapped for cash right now, the sooner you pay it off, the better!
5. Lower Interest Rates
If you have private student loans, shopping around for a new lender or applying with a cosigner can help to lower your interest rate. Lenders may offer different terms or provide discounts that can save you more money than your current lender offers. Consolidation can help you take advantage of some of these opportunities.
Unfortunately, this benefit is not available for federal student loans. Consolidation will have no impact on the interest rate of your federal loans because your new interest rate would be a weighted average. This means you’ll be paying the same amount in interest on your one loan as you were on multiple.