When You Should Consolidate Federal Loans

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By Chris Snellgrove

May 6, 2020

Federal loan consolidation offers a number of benefits, including the potential for extra time to pay and lower monthly payments. At the same time, new terms could cause you to pay more in interest or lose some lender-specific benefits. 

That brings up the obvious question: when should you consolidate federal loans? Keep reading to know when you should make this major decision. 

Keep in mind there are some cons to consolidating federal student loans. You may end up paying more in interest over time, you forfeit your grace period, and you’ll lose benefits that come with certain loans. If you consolidate, you restart the clock on any payments you made toward Public Service Loan Forgiveness. Which means any payments you made did not count towards the amount you need to have your loans forgiven.

The Paperwork Is Too Much

One of the best reasons for consolidating your federal loans is also the simplest. Maybe you’re just sick and tired of the paperwork.

Over the course of your education, you may receive many different federal loans with different terms, payment due dates, and so on. And that means a ton of extra paperwork for you to deal with each month.

If you’d rather have one lender and one payment (complete with the option to auto-debit), then consolidation may be your best bet.

You Can’t Make Payments

A major reason that many borrowers pursue consolidation is that they are having difficulty making their monthly payments. And depending on the loan, you may not have much you can do to lower that amount.

With direct consolidation, you can get additional time to pay off your loan. And this extra time results in a lower payment amount from month to month.

Additionally, you may be able to qualify for an income-contingent repayment plan after consolidation. And this can help further reduce the amount you owe each month.

Unemployment Or Economic Hardship

Typical federal loans have a hard limit on deferments and forbearances. After three years of receiving these benefits, you may no longer be able to get a deferment or forbearance regardless of your circumstances.

Once you consolidate your federal loans, you effectively restart that clock and can apply for deferments and forbearances once again. That means if you are currently experiencing unemployment or economic hardship, you can get relief from making monthly payments for up to three years by getting a consolidation.

In Danger of Default 

An inability to make monthly payments is more than a temporary inconvenience. If it continues, this may seriously hurt your credit and even make you default on these loans.

Consolidation is a great way to avoid such a fate thanks to the extra time to pay and lower monthly payments along with the options for forbearance and deferment. This provides a great way for you to get your federal student loan payments back under control once again.

Ultimately, for those in dire financial need, federal student loan consolidation is one of the best ways to get your finances back on track.


A good place to start:

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