Income-based repayment uses your earnings to determine your monthly bill.
What is loan consolidation?
Loan consolidation enables a student to consolidate multiple student loans into a single loan. By consolidating your student loans, you only have to make one payment every month. You also can extend the repayment term.
Private and federal lenders offer student loan consolidation. However, private lenders may charge a fee for their consolidation services.
Your new loan will have a fixed interest rate. If you have loans with variable interest rates, you may prefer the stability and predictability of a fixed payment. If your existing loans come with benefits, such as interest rate reductions or rebates, these benefits may end with loan consolidation.
Loan consolidation is one way to make your student loans more affordable, as you can extend the loan term to 30 years. Though this decreases your payment, you’ll pay more in interest expenses. There are multiple repayment plans:
- Standard repayment (fixed payment for up to 30 years).
- Graduated repayment (payments increase over time).
- Income-based repayment.
You can consolidate the following types of student loans:
- Direct Loans (subsidized and unsubsidized).
- Federal Stafford Loans (subsidized and unsubsidized).
- Direct PLUS Loans.
- FFEL PLUS Loans.
- Federal Perkins Loans.
- Federal Nursing Student Loans.
- Health Education Assistance Loans.
The following loans are not eligible for consolidation:
- Parent PLUS loans.
- Private loans.
Some existing consolidation loans may be included in your loan consolidation.
Loan consolidation example
If your student loans are breaking your budget or if you are overwhelmed trying to keep track of them, you should consider loan consolidation.
For example, if you attended undergraduate and graduate school, you likely have different types of loans from multiple lenders.
Assume that you have a Federal Perkins Loan, a Stafford Loan, and a Direct PLUS Loan, all of which require payments to different institutions.
By consolidating, you only have to make one payment. You also can extend your loan term from the standard 10-year term to 30 years, or you can opt for an income-based payment so that your payments adjust to your budget.
Run the student loan numbers and see how a longer repayment period can lower your payments.