On the flip side, consolidation could help borrowers gain access to forgiveness options such as the Public Service Loan Program, as well as the Pay-As-You-Earn repayment plan, notes Kantrowitz of Edvisors.com.
3. Simplifying doesn't guarantee savings: Consolidation can reduce what can be dozens of loans and payments to just one loan and one payment. But that shouldn't be the sole reason graduates combine their loans, says Mayotte of American Student Assistance.
"If that's the only reason and you're someone who can keep track, it's not the best solution," she says. "There are other ways to make it easier, such as automatic debit."
Borrowers who are struggling to make their payments could see immediate relief through consolidation, but they will still end up paying more, Mayotte says.
"It combines the debt and extends the term and therefore lowers the payment," she explains, adding that consolidation might be a smart move for students at risk of defaulting, but that it's not for everyone. "You end up paying a lot more in the long run."
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4. Think short and long term: Recent graduates should not base their decision to consolidate solely on their current financial picture, Mayotte says. After all, for many graduates, it will improve over time.
If borrowers enter a profession where salaries typically start lower and then increase over time, income-based repayment might be the best option, she says.
However, if the inverse is true, then consolidation warrants a serious look. Graduates entering fields such as social work, where salaries don't increase significantly over time, may benefit from consolidation and an income-based repayment plan, she says.
Loan consolidation can also be a lifeline for borrowers in default, says Loonin, with the National Consumer Law Center. Graduates with delinquent loans may be told they need to bring their loans current in order to consolidate, but that isn't always the case, she adds.
"If it's that far gone, it's often a good strategy to get out of default," she says, but warns there is a lot of misinformation about prerequisites for the process. Students may not have to make payments first, she says, as long as they choose an income-based repayment plan.
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