Is it Smart to Consolidate Your Student Loans? – DC Initiative on Racial Equity
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Is it Smart to Consolidate Your Student Loans?

When you refinance federal loans and private loans into one new private loan you will no longer be eligible to use repayment options included in the government’s income-based repayment programs or forgiveness programs like public service loan forgiveness.

To decide, you should look at the loan repayment terms for each of your current loans-and whether refinancing can help you do better. You can get an estimated rate from Earnest in just two minutes.

The main advantage of student loan consolidation is simplicity. Instead of making multiple monthly payments, you make just one student loan payment. This reduces the risk that a payment will slip through the cracks and affect your credit score.

A federal direct consolidation loan may be a good option if you’re happy with the average of the interest rates on the loans you have, you are planning to use an income-based repayment program such as PSLF, or if you are working towards having good https://badcreditloanshelp.net/payday-loans-ca/ credit for the refinancing application process. The important thing to remember is that while consolidation gives you the option to stretch out your repayment term with a lower monthly payment-doing so means you may pay more interest on your student debt over time.

Will Consolidating Student Loans Hurt My Credit?

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In general, direct loan consolidation has no negative effect on your credit. Unlike student loan refinancing, the federal government does not require a hard credit pull (aka a credit check), a process that can have a small, short-term impact on your credit score and will show up on your credit report later. A new direct consolidation loan allows you to choose a comfortable monthly payment, making it less likely you’ll miss a payment or make a late payment.

What are the Pros and Cons of Student Loan Consolidation?

The number one advantage of student loan consolidation is a simplified loan payment. You also have the option to select a longer loan term that can reduce your loan payment. Depending on the loans you have, there may be some downsides to student loan consolidation. Perkins loans, for example, may be forgiven for teachers and other public servants. Consolidating them would eliminate access and enrollment to this loan forgiveness option. Additionally, any grace period or deferment you have with your current loan program also goes away if they are consolidated.

Which Loans are Eligible for Private Consolidation?

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You can refinance both the total amount of your federal and private student loans. This includes all types of federal loans, including Direct Loans, Stafford Loans, and PLUS Loans.

It’s important to note that when you refinance, you can decide which loans you want to refinance and which, if any, you’re happy to keep those student loan repayment terms. Some people may want to refinance all of their loans, and others may want to refinance only some of them.

Again, keep in mind that when you refinance federal loans and private loans into a new private loan, you will no longer be eligible to use the government’s income-based repayment programs.

To decide, you should look at the terms for each of your current loans-and whether refinancing can help you do better. You can get an estimated rate from Earnest in just two minutes, without affecting your credit score.

It’s important to note that when you refinance and consolidate, you can decide in your loan application which loans you want to refinance and which, if any, you’re happy to keep at their current terms. Some people may want to refinance all their loans, and for others it may make sense to only refinance some of them.

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