Consolidating Student Loans: What You Need to Know Going In

Should I Consolidate?

Generally speaking, consolidate all the loans possible to get one simplified payment with the best terms possible. However, consolidation isn’t always the best answer. You need to take stock of your loans and decide if you should consolidate all, part, or any of them.

For instance, U.S. government loans have a fixed interest rate, so if you consolidate at a time when rates are higher, your rates will rise. However, you may be able to opt in for income based repayment (fluctuating minimum payments based on your income in which you pay smaller minimum up front, higher on the back end) and also a longer term repayment, lowering your monthly minimum.

What Terms Should I Consider?

When you consolidate your loans, you will have the option to choose your repayment length, i.e. 10, 15, 25 years, etc. It’s sickening to think of still paying on these loans when you’re 50! Paying for 25 years also means that you are paying a much higher total in the end, since less of your payment each month is going to the loan principal. However, choosing the longest repayment option possible does not mean that you have to only make the minimum payment, just that you have the option to pay less during lean times.

Additionally, some lenders allow you to pay more than the minimum payment and create a debit to your account with out penalty. Some lenders will charge a fee for this, so ask up front when seeking consolidation! This will be important later when you are making side income and paying off the loans faster. The benefits of this is that if you make large payments, you will not be forced to make another payment until that debit is expired, though the lump sum still goes to the principal and you are not paying interest on the part that’s gone. For instance, if your payment is $500 a month, and you pay $1000, then you have a $500 debit and wouldn’t have to pay the next month, and that extra $500 went straight to principal. Think of it as a buffer incase you fall on hard times, offering you more future flexibility with the option to still repay as quickly as possible.

If you are in the United States and have part or all of your student debt through government loans, likely you already have those loans switched over to Sallie Mae. Even though you had the option of holding those loans through private companies, the government loans have all be sold back to the government. This does not mean they are consolidated though!

How Do I Get Started?

Once you have a summary of all of your different loans, call your lender (Sallie Mae or the private company) to start talking about how you can roll those separate loans into one lower monthly payment. If you go through different lenders, you may still have multiple payments, but rolling the payments into as few groups as possible will help to make them more manageable.

Top ranked lenders for consolidation generally include banks like Chase  or Wells Fargo (my personal consolidation lender), though many different lenders provide this service, so shop around for the best terms in your situation.


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