Student loan consolidation can save you a lot of money over time, but it depends on several factors:
- The interest rate on your current student loans
- The interest rate offered by a loan consolidation company. Although the rate of your consolidation loan is determined by the weighted average of your current loans, many consolidation companies offer discounts for people with good credit, on-time monthly payments and direct debits.
- Your expectations for the future changes in interest rates.
When you consolidate your student loans, you transfer the amount that you owe from a variable interest rate that can change from year to year to a fixed interest rate. You typically have the option to extend your repayment period to as long as 30 years.
The conversion of a variable rate to a fixed rate gives you a great amount of security should interest rates begin to rise. However, if you expect interest rates to fall, you may want to wait a bit longer before you consolidate your student loans.
The federal government provides a very useful calculator to determine how much you would might save if your consolidated your student loans.
You may not want to consolidate if:
- You would lose borrower benefits such as interest rebate discounts or principal rebates.
- You hold Federal Perkins Loans - you might lose some cancellation benefits
Also, keep in mind that by consolidating your student loans you will be stretching the repayment period. That means you will pay more interest over the life of the loan (but you will likely reduce your monthly payment and pay a lower interest rate).