When Is The Best Time To Consolidate Your Student Loans?

When Is The Best Time To Consolidate Your Student Loans?

If you have student loans outstanding, then it's quite possible that you've looked into the option of consolidating them all into one loan.  It can be difficult to find the money to pay multiple loans each month, plus you have to remember how much to pay on each loan and when the payment is due.  So consolidating everything into one loan can be quite appealing.

Basically, student loan consolidation works the same way as refinancing your home.  The principal of the loan will still be the same, so you'll owe the same amount, but you can negotiate better terms that make your payments lower.  This might mean a better interest rate, or perhaps an extended repayment period.  You might just want to fix the interest rate on the consolidated loan now, while interest rates are low, rather than risk the variable rates on your student loans rising too far.

If you've just left college, then you will usually have a 6-month grace period before you have to start making repayments on your student loans.  The idea behind this is to give you time to find a job and get your life organized before the loan payments kick in.  So if you're thinking about consolidating, it might be better to wait for the initial six months to be over before going ahead.  Either that, or organize your consolidation loan right before the end of the grace period.  Remember, though, that once your student loans are consolidated, you can't reverse the process, so choose your loan carefully.

When you consolidate, your interest rate is likely to be linked in some way to the interest rates you're already paying on your student loans.  So it might work out to be the average of all the interest rates.  So although you might not save much initially in interest, it can be worth looking for lending institutions that give you an interest rate discount for prompt payment, or for setting up an automatic deduction from your bank account.

Of course, there are a couple of ways to have your student loans cancelled, which can be an option for some people.  Usually it involves volunteering for the Peace Corps, or working for the government in an area that struggles to keep professionals such as doctors and teachers.  If you think you might be interested in pursuing an opportunity like that, then consolidating isn't a good idea, because your won't be able to have it cancelled.

It's also usually better to consolidate your student loans earlier rather than later.  If you're only a year away from completing payments on your student loans, it might actually be simpler and cheaper to just pay a bit extra so the student loans are complete earlier, rather than consolidating.

Also, there are some student loans that have other advantages to offer, and so they might be worth keeping.  An example is a Perkins loan, where the government will pay all the interest on the loan while you're in school.  Once you consolidate a Perkins loan, however, that advantage is lost.  So you might want to reconsider consolidating your student loans, or at least leaving the Perkins loan out of the consolidation.