College students relying on student loans to pay for college can easily graduate with 16 or more separate loans. Plan to borrow for graduate school, too? Add a few new loans, interest rates and bills to that list.
Each subsidized, unsubsidized, Perkins and PLUS loan borrowed each semester or quarter comes with its own interest rate and monthly statement.
[Learn about recent student loan interest rate changes.]
Keeping tabs on every loan and figuring out exactly what is due each month can be tricky. Consolidating those loans can eliminate some of the confusion, says financial aid expert Mark Kantrowitz, publisher of Edvisors.com.
"Consolidation can make it easier to repay student loans by streamlining repayment and replacing multiple loans with a single loan," Kantrowitz said via email.
This is not a one-size-fits-all solution, though, and experts suggest graduates consider four things before consolidating.
1. What you owe: Borrowers need to understand more than just their loan balance. They also need to know what type of loans they have. The National Student Loan Data System gives students a rundown of each federal loan by type and date disbursed.
Most borrowers have a mix of subsidized and unsubsidized Stafford loans. Interest rates on these varied over the years, so check with your loan servicer – the one who sends the statements each month – to find out the rate on each loan and whether it is fixed.
The interest rate on a consolidation loan is based on the average rate of all loans being consolidated. If borrowers combine low interest rate loans with those that have a higher rate, they could wind up paying more interest over time, says Deanne Loonin, director of the Student Loan Borrower Assistance program at the National Consumer Law Center.
"It plays out different ways for different people," Loonin says. "Some people, particularly if they have subsidized loans at different interest rates, their interest rate could go up if they put them all together."
Borrowers should also know whether their loans are through the federal government or a private lender such as Chase or Wells Fargo.
While private loans cannot be consolidated under a federal loan, private lenders may be more than happy to take over your federal loans. That doesn't make it a good idea, says Betsy Mayotte, director of compliance for American Student Assistance, a nonprofit that helps students manage college debt.
"Don't ever consolidate private loans with federal loans," Mayotte says. "Never."
2. Loan benefits: Some federal loans carry benefits that other don't.
Perkins loans, for example, carry forgiveness options not available on Stafford or PLUS loans.
Graduates can have up to 100 percent of a Perkins loan forgiven if they enter law enforcement, join the Peace Corps, are deployed with the military or become a science teacher, among other things. Consolidating a Perkins loan with another loan could eliminate that option.
Perkins, Stafford and Grad Plus loans offer income-based repayment options. Parent Direct PLUS loans do not. Combining a Parent Direct PLUS loan with another type of loan can eliminate some of those flexible repayment options, says Loonin with the National Consumer Law Center.
"If you combine your Parent PLUS loan with your other loans, it taints the entire loan," she says. "If you have a Parent PLUS loan, do some extra research and make sure you're not making things worse for yourself."
[Discover the perks and pitfalls of simplifying student loan repayment.]