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Should You Consolidate Your Student Loans?

A pair of hands holding a pen and a clipboard that reads “student loan consolidation”

If you walked off the graduation stage with a degree, a sense of accomplishment, and a few student loans, you might be considering consolidating your student debt. While debt consolidation works well for some, it may not be the best fit for everyone. Keep reading to find out the pros and cons of student loan consolidation, and decide whether it’s the right choice for you.

What Does Consolidating Your Loans Mean?

In a broad sense, loan consolidation involves taking more than one loan and combining them into a single amount under one interest rate. Federal loan consolidation can only package together federal loans and won’t lower your interest rate, but may lower your monthly payments by extending the length of the loan.

On the other hand, privately consolidated student loans package these loans together through a private lender. It may lead to a lower interest rate but will not come with the same safety guarantees as federal loans.

Benefits of Consolidating Student Loans

Since private refinancing and consolidating federal student loans vary, some of their benefits do as well. However, one of the major benefits is to simplify your debt management. For some, this may make a significant difference in their ability to repay loans.

Secondly, there is potentially less financial burden by having more time to pay off a loan or lower your monthly bill. Also, a lower monthly bill increases your ability to pay above the payment, creating a snowball effect in repaying loans. Plus, if only some of your loans would benefit from consolidation, you can leave those others out and retain their separate benefits.

Risks of Consolidating Student Loans

Consolidation may extend your repayment period, but this may ultimately lead to more interest paid over time. Additionally, any unpaid interest will be added to the principal balance of a consolidated loan, meaning you could be paying interest on a higher loan than before.

If you’re consolidating with the federal government, your interest rate will be the weighted average of your loans’ interest rates. You can calculate this new rate to weigh the benefits or drawbacks on the official Student Aid website.

While refinancing with a private company can lower your interest rate, it will cost you the benefits and protections of federal loans — including income-driven repayments and loan forgiveness. It may also impact your credit score, if your student loans are your longest-existing lines of credit.

Should I Consolidate My Student Loans?

Student loans are notoriously tricky to navigate because there are so many variables — consolidation is no different.

The main advantage for most is to make one monthly payment at a fixed rate. If you’ve found yourself unable to keep track of your payments, this alone may be worthwhile. With the extended repayment periods, it’s unlikely consolidation alone will save you money in the long run.

To calculate the potential benefit of consideration, consider the following pieces:

  • Exactly how much do you owe?
  • Which company do you make payments to every month?
  • How much do you pay in interest, and how long will it take you to pay off your loans at your current rate?

Then, compare these answers with what you’ll pay if you consolidate. Results will vary for everyone, but the most important part is discovering what works best for you.

Find Long-term Success with Landmark National Bank

While you’re navigating student loans and post-graduate finances, it’s vital to partner with a bank you can trust. Having a personal checking account that gives you financial benefits may be the difference between paying off your loans and just keeping up with them.

Run by a dedicated team, Landmark National Bank offers high-quality financial services catered to your needs. Find a location near you or contact us with questions today!

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