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  • Writer's pictureJames Heinz

Understanding Pros and Cons of Consolidating Student Loans

Student loan debt is a massive burden for many Americans. If you're struggling with multiple student loans, consolidation might seem appealing. But is it the right move for you? Let's explore the pros and cons of consolidating student loans.

Introduction to Student Loan Consolidation

Student Loan Consolidation
Student Loan Consolidation

Consolidating student loans means combining multiple federal or private loans into a single new loan. This new consolidation loan essentially pays off the balances on your existing loans, leaving you with just one loan and one monthly payment to manage going forward. The primary aims of student loan consolidation are to simplify the repayment process and potentially lower your monthly payment amounts.

However, there's a key difference between consolidating federal loans and refinancing private loans.

For those feeling overwhelmed by these processes, Shepherd Outsourcing offers guidance on finding personalized debt management plans that can make consolidation easier to navigate!

Consolidating Federal Student Loans

For federal student loans, consolidation is done through the Department of Education's Direct Consolidation Loan program. This program allows you to roll multiple federal loans, such as Direct Loans, Stafford Loans, and PLUS Loans, into a new Direct Consolidation Loan.


  • To qualify, you must have at least one loan in repayment or in the grace period.

  • The process involves submitting an application and promissory note.

  • Benefits include a single monthly payment and access to income-driven repayment plans.

However, consolidation may increase the total interest you pay over the life of the loan. 

Consolidating Private Student Loans

For private student loans, lenders use the term "refinancing" rather than consolidation. You apply for a new private consolidation loan from a bank or lender, which is used to pay off the balances on your existing private loans.

Private student loans cannot be consolidated into a federal Direct Consolidation Loan. Instead, you'll need to refinance them with a private lender.

Refinancing may get you a lower interest rate, reducing your overall costs. But you'll lose access to federal loan repayment plans and forgiveness options.

Lenders evaluate your credit score, income, and other factors to approve refinancing.

Alright, let's dive deeper and break down the pros and cons of consolidating student loans.

Pros of Consolidating Student Loans

pros and cons of consolidating student loans
pros and cons of consolidating student loans

  • A single monthly payment makes loan management much simpler

Having just one bill to keep track of reduces the risk of accidentally missing a payment and becoming delinquent. It also makes budgeting and tracking debt payoff progress more straightforward.

  • Extending the repayment term could lower your monthly dues

By stretching out payments over a longer period, the amount due each month can decrease significantly compared to loans with shorter terms. This frees up cash flow for other expenses.

  • You may qualify for income-driven repayment plans on federal loans

Consolidated federal loans are eligible for plans like IBR, PAYE, and REPAYE that cap payments at a percentage of your discretionary income.

  • Consolidating federal loans preserves eligibility for forgiveness programs like PSLF

As long as all consolidated loans were originally federal, you maintain eligibility for initiatives that discharge remaining balances after years of qualifying payments.

  • Fixed interest rates provide predictability, and there are no minimum or maximum amounts

Consolidation interest rates don't fluctuate over the life of the loan, unlike variable private rates. There are also no restrictions on how much you can consolidate.

Cons of Consolidating Student Loans

  • You'll likely pay more interest over the extended repayment period

While lowering your monthly payment by expanding the term, you accrue additional interest charges that can significantly increase overall loan costs.

  • Interest rates are rounded up, potentially increasing your costs

Consolidation loans use a weighted average interest rate rounded up to the nearest 1/8%, which could mean paying a higher rate than some of your original loans.

  • You may lose specific benefits associated with individual loans

Certain deferment, forbearance, interest rate discounts, or repayment options could be forfeited after consolidation.

  • Consolidating different loan types could disqualify you from certain federal benefits

For example, consolidating a Perkins loan into a Direct Consolidation Loan would cost you eligibility for Perkins loan cancellation.

  • Longer repayment terms mean staying in debt for more years

It could take one or two decades longer to completely pay off consolidated loans compared to your original ones, delaying a debt-free future.

Feeling like you're standing at a crossroads? The next section might just help you choose the right path.

When to Consider Student Loan Consolidation

Student loan consolidation can provide significant benefits in certain situations but may not be advantageous in others. 

It's generally a good option for borrowers struggling to manage multiple monthly payments across various loans, as well as those with a considerably large total amount of student debt

Consolidation may be advisable if maintaining access to federal loan benefits like income-driven repayment plans or loan forgiveness programs is crucial for your financial circumstances.

By consolidating federal loans through the Direct Consolidation Loan program, you preserve eligibility for such initiatives designed to assist borrowers. However, refinancing federal loans through a private lender would forfeit these federal protections.

It is wise to utilize tools like the Department of Education's Loan Simulator to make an informed decision. This resource allows you to evaluate various consolidation scenarios and compare factors like interest rates, monthly payments, and total costs under different repayment strategies.

Assessing your specific loans and financial goals thoroughly can help determine if consolidation's potential benefits outweigh your situation's drawbacks.

For those seeking a more streamlined approach to managing their student loan debt, consulting with Shepherd Outsourcing can offer customized solutions that respect your financial situation and goals.

Conclusion: Is It Worth Consolidating Your Student Loans?

Consolidating student loans can simplify repayment and potentially reduce monthly payments. However, it often leads to paying more interest over the longer term. The decision depends on your unique financial situation and goals.

  • Weigh the long-term costs against the benefits of simplification and potentially lower payments

  • Consider whether federal loan benefits like income-driven plans are essential for you

  • If you can afford higher payments, it may be better to avoid consolidation and pay off loans faster

  • Regardless, create a budget and repayment plan to tackle your student debt aggressively

Student loan consolidation is not a one-size-fits-all solution. Deciding whether to consolidate your student loans is a significant financial decision. Take the time to understand the implications for your specific loans and financial circumstances and weigh the many pros and cons of consolidating student loans. With careful evaluation and planning, you can make the right choice for a debt-free future.

Shepherd Outsourcing helps you make the right decision in this journey.

Shepherd Outsourcing's commitment to personalized debt management plans offers a supportive path forward for those navigating the complexities of student loan repayment. Click here to explore your debt management options and start your journey to financial freedom today!


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