Consolidating your student loans wisely depends on the skills you learned as a student. You will need to use the following higher education skills:
- Math – To determine if consolidating or refinancing your student loans you will need to compare the amount you will pay in principal and interest over the life of your current loan(s) and compare that with what you will pay with the new loans. Does it add up to a smart move?
- Research – Read all of the terms and conditions in the loan agreement before you eagerly sign. Legal terms in an agreement you will be bound to is far different than what a salesperson may tell you. Make sure you understand what you are agreeing to.
- Raise Your Hand – If there is anything you don’t understand before you click to agree to a new loan or sign a contract, be sure to ask all the questions you have and get answers that resolve your issues.
Consolidating Your Student Loans Can be the Smartest or Dumbest Thing You’ll Ever Do
One issue in particular that always concerns me is when people consolidate their federal student loans into a new private student loan. When you do this you will lose any of the federal program benefits you currently have.
In particular:
- You will no longer have access to lower monthly payment income-drive repayment programs.
- Special programs like Public Service Loan Forgiveness will no longer be available to forgive all of your federal loans if you work in public service.
- Your loans may not be eligible for forgiveness if you become disabled.
You Can Get an A+ in Smart Student Loan Consolidation and Refinancing
But consolidating your private student loans can make good sense, the math may add up, and the monthly payments may be more affordable. So, like everything else that was related to school, just use the same studious qualities you utilized when doing research and writing papers to get a good grade.
Footnote
If you used any private student loans for things other than the cost of attending school, you may want to speak with a knowledgeable bankruptcy attorney. All or part of those private student loans may be eligible to be forgiven tax-free in bankruptcy. If you want to know why read this.
Frequently Asked Questions About Student Loan Consolidation
Is consolidating my student loans a good idea?
It depends entirely on which loans. The page is direct: consolidating your PRIVATE student loans can make good sense if the math adds up and the payments become more affordable. But consolidating FEDERAL loans into a NEW PRIVATE loan is one of the biggest mistakes you can make — you permanently lose the federal protections attached to those loans.
What do I lose if I consolidate federal student loans into a private loan?
Three things the page names specifically: access to income-driven repayment programs that lower your monthly payment, eligibility for Public Service Loan Forgiveness if you work in public service, and eligibility for loan forgiveness if you become disabled. Once you move a federal loan into a private one, none of those come back.
What should I check before signing a consolidation or refinancing agreement?
Do the math on total principal and interest over the life of both the current and new loan, read every term and condition rather than trusting what a salesperson tells you, and ask every question you have before you sign — this page frames it as no different from studying for a test: research first, then decide.
Can private student loans ever be discharged in bankruptcy?
Possibly — the page flags a specific situation: if you used private student loans for something OTHER than the cost of attending school, all or part of that debt may be eligible to be forgiven tax-free in bankruptcy. The page recommends speaking with a knowledgeable bankruptcy attorney to find out if this applies to you.
How does the calculator on this page help me decide?
It lets you compare what you’d pay in principal and interest under your current loan(s) against what you’d pay under a new consolidated or refinanced loan, so you can see whether the new numbers actually add up in your favor before you commit.
