Is Consolidation the Best Way to Manage Student Loans?

April 16, 2020 | by Jacob Hamilton

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In recent years, the cost of a college education has grown to the point that the average college graduate today leaves college with a degree and almost $20,000 in student loan debt. To make matters worse, college tuition costs have outpaced the amount of financial assistance many students are able to receive from low-interest government loans forcing students to apply for private student loans with higher interest rates and much less forgiving payment plans.

It is increasingly common for college graduates to be stuck paying off their student loan debts for a decade or more after they have completed school. In addition, because of the burden student loan debt places on college graduates, many graduates are forced to delay purchasing a home and a large percentage also put off marriage and having children.

To help make debts more manageable, many former students look to consolidate their student loan debts. Consolidation has helped many people lock in low interest rates and reduce their monthly payments. However, consolidating student loan debts is not the best option for everyone so before running out and applying for a consolidation loan, consider these points first.

Consolidating Your Student Loans May Not Improve Your Interest Rates

One of the benefits of a debt consolidation loan is the convenience of having all of your student loans debts combined into a single monthly payment. For grads that already consolidated some of their loans while still in college or do not have a sizable amount of high interest or variable interest loans, a consolidation may not make sense because the interest rate on the consolidation loan is not as good as the combined rates of the existing loans. In these cases, it is better to continue making separate loans payments.

How Much Will A Debt Consolidation Loan Really Cost?

Sure, consolidating your student loans can cut your monthly payments significantly, but at what cost? By consolidating your student loans, you can extend the payment period out to 20 years. This amounts to 20 years of interest payments which can make the overall price of paying off your student loans significantly higher. For example, on a $20,000 loan at 6.8% you can reduce your monthly payment by almost $80 by moving from a 10 to a 20 year loan, but you will end up paying $9,000 more in interest payments.

Extending the loan term may be beneficial for graduates who are entering lower paying professions, but graduates who can afford the original payments may be better served by sacrificing a larger portion of their earnings over the shorter time span.

What Incentives Can You Negotiate?

Rates on student loan consolidation loans are fixed and lenders offering student loan consolidations are not allowed to charge fees on student loan consolidations or to charge prepayment penalties. This puts you in the position of power because companies competing for your business need to offer extra incentives to get you in the door. Look for lenders who are willing to provide a discount if you set up automatic payments or establish a history of timely payments. Take time to shop around to ensure you get the best offer available on your debt consolidation loan.

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Jacob Hamilton


With his master's degree from the University of Phoenix, Jacob has been working as the General Manager for for 2 years. Jacob is passionate about consumer finances and doing everything he can to make credit repair accessible....

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