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Student Loans: What to Know Before Consolidating

Mar 18, 2020 5 min read Kevin Johnston

Key Takeaways

  • Better credit terms can be cause for consolidation.
  • Moving to a flexible plan can bend payments to your will.
  • Consolidation can cost you over the long term.


You have graduated from college and now you’re ready to make your way in the world. But you have several student loans, each with its own payment due each month. It seems like all you do is juggle the money to pay your loans on staggered dates in varying amounts.



It might make sense to consolidate your student loans into one large loan.


To consolidate…

Here are the reasons you may want to consolidate:

You can create better cash flow

You need more cash in your pocket each month, and your loan payments keep eating it up. By consolidating, you could get a longer time period for the loan -- say 20 years instead of five years. This would lower the monthly payment and give you money to use on something besides debt.

You want one simple payment

Some students carry five to seven loans that have different deadlines for payments each month. If you consolidate these into one, you can make a single payment to one company instead of watching the calendar out of fear you will be late.

You need a flexible payment plan

Consolidation loans with a flexible payment feature allow you to set your payment rate based on your income. If you have low income now, you can pay less and then gradually increase the payment amount as you earn more money. This can keep payments proportional to your earnings.

You could get a lower interest rate

Rates change constantly, and they may be lower than when you took out your loans. You could get a lower interest rate now. This means you would pay less over the life of the loan. Another reason you might get a lower rate is that your credit score may have improved.

One set interest rate can help you keep up

If you have variable rates on your loans, you may find the rates rising and the expense growing. Consolidate your variable-rate loans into one fixed-rate loan, and you will stabilize your payments so you don’t have to keep adjusting.


…Or not to consolidate

There are several reasons you might not want to consolidate.

Long-term costs may be most important to you

Consolidating your loans tends to not only lengthen the time you must pay, but also increases the total amount you pay over the lifetime of the loan. You will find it less expensive to pay off your current loans instead of tacking on more time and payments.

You have nearly paid off your loans

Once you have made it to the last few years of your loans, consolidation won’t make sense. You would end up adding length to the loan and costing yourself more money unnecessarily.

Payments are easy for you

If you currently keep up with your payments without strain, consolidation may not be for you. With a new loan, you could pay origination fees that get added to the amount you owe.


What you can do next

Consolidating student loans can simplify your life and leave more cash in your pocket each month—but it can also cost you more in the long run. Before you make the move, evaluate the pros and cons against your financial situation and lifestyle needs.


Kevin Johnston is a financial writer who writes about personal finance and investments, as well as financial management and planning. He has written for The New York Daily News, The New York Post, The San Francisco Chronicle and The Houston Chronicle.


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