What to know about consolidating student loans

Borrower protections

Federal consolidation loans come with borrower protections private lenders may not offer. These include deferment -- the ability to suspend payments under certain circumstances such as serving active military duty, attending further education or unemployment -- and forebearance, which allows borrowers to postpone payments while still accruing interest, in cases of financial hardship. Federal loan borrowers can also lower their monthly payments by extending the life of their loan, having their payments capped according to their income and by having their debt dismissed after making 25 years of consecutive payments under the income-based repayment plan.

But borrower protections and repayment options on private consolidation loans can vary wildly from lender to lender. Betsy Mayotte, director of regulatory compliance for the student debt assistance group, American Student Assistance, makes sure to tell borrowers to stay away from consolidation loans that combine federal and private loans. Consolidating both types of loans excludes borrowers from federal protections. When eyeing consolidation options for private loans only, Mayotte says borrowers should evaluate the new loan's hardship protections and repayment terms in addition to the interest rate.

"If the terms you're going to get are the not as generous as the terms you already have, consolidation is probably not a good idea," she says.

The consolidation catch

Regardless of whether consolidating federal or private loans, there is a catch. While loan consolidation can sometimes dramatically lower a borrower's monthly payments, Kevin Walker, co-founder of the college finance site, says it can also cost you.

"The downside of getting a lower monthly payment is that you're going to subject yourself to substantially more interest charges over the life of the loan," he says.

The silver lining is that all federal consolidation loans and some private ones don't have prepayment penalties. Should borrowers pay off their loans early, they can save hundreds, sometimes thousands, in interest charges.

"Would it be nice to have just one loan where you make that one loan payment every month? Sure," says Michelle Pezzulli, "... but at what price?"

How to consolidate your student loan

Students consolidating federal loans can do so through the Department of Education's website at Loan, by phone at (800) 557-7392 or by downloading a paper application at and mailing it in. Almost all types of federal loans can be consolidated. Borrowers should have loan account numbers, estimated payoff dates and contact information for each of their loans' holders ready. Those seeking consolidation should also review their repayment options at, so they're prepared to pick the proper repayment plan.

Once the application is submitted, the federal government estimates that it takes 60 to 90 days to officially complete the consolidation process.

Consolidating private loans works in a similar fashion, as far as paperwork goes. The difference is you'll need to apply through a private lender. Some are better than others, so make sure to look at the varying terms of each one -- staying away from charges or origination fees and checking the maximum interest rate so you won't get burned down the road. Most also have limits on how much you can consolidate. Know that you might need a higher credit score if you want the best rates without a co-signer.



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