Should You Consolidate Your Loans

Updated 7/22/08

Once you leave school, you can consolidate all of your federal student loans into one big debt.

Consolidation is tempting because:

1) It's easier to keep track of and pay one bill a month.

2) The government allows you to consolidate your 10-year student loans into a 30-year debt, which can cut your monthly payment by about 40 percent.

3) Those who take advantage of the government's special income-based consolidation plans (which allow low-income graduates to repay just a percentage of their income) might eventually have some of their loan forgiven.

But before you consolidate, consider the downsides.

1) If you stretch out repayment, your monthly payment will be lower, but you will be making so many more payments that you will eventually pay tens of thousands of dollars more in interest.

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2) Some federal student loans made by nonprofit agencies (also try this search) are better deals than consolidated loans.

If you decide consolidation is a smart move, here are a few tips:

1) Check with your university's financial aid office to see if your school has any special deals.

2) Check with your department head to see if you might qualify for any loan repayment programs. Those are sometimes open only to graduates who have consolidated their loans directly with the federal government.

3) Check with your employer to see if you can qualify for any in-house loan repayment program.

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4) Shop for better consolidation deals by checking with nonprofits or a web loan shopping tool like this.

5) Once you've narrowed your list down to the best one or two deals, call your current lender. Students who threaten to consolidate with a company other than their original lender are sometimes offered extra discounts and rebates to return. It's worth asking!

6) Beware of consolidation loan scams.