Should i consolidate loans student

In many cases, that can be a smart financial move. But before deciding to consolidate or refinance, it pays to take a close look at the pros and cons. Federal student loan payments—including principal and interest—have been automatically suspended through Jan.

Also, the Department of Education stopped the collection of defaulted federal student loans or loans in nonpayment. Garnishment of wages and any offset of tax refunds and Social Security benefits have also been stopped through Jan.

The loan payment suspension began as part of the pandemic response in March of and was instituted by President Trump and the Department of Education.

The suspension extension does not apply to private student loans and expires on Sept. There are two basic ways to consolidate your student loans—through a private lender or through the federal government.

Only federal loans are eligible for federal consolidation. In the case of a private student loan consolidation often referred to a refinancing , a private lender, such as a bank, pays off your private or federal student loans and issues you a new loan at a new rate and with a new repayment schedule.

Refinancing makes the most sense if you have high-interest private loans and can obtain a significantly lower rate or better terms with the new loan. However, with federal student loans, you have another option, which is to combine them into a new direct consolidation loan , through the Federal Direct Loan Program.

Your new interest rate will be the weighted average of your previous loans, and you will remain eligible for some of the special features of federal loans, as we'll explain later. While you can't consolidate private loans into a federal loan, if you have both private and federal loans, you can consolidate the private ones with a private lender and consolidate the federal ones through the government program. Here's a look at the major pros and cons of both private and federal loan consolidations.

Private loan consolidation can help reduce your monthly loan payments in two ways. First, the refinanced loan may carry a better interest rate, which not only means lower payments but can also save you money over the life of the loan. Many graduates also find that they can get better interest rates because their credit scores have improved since they first applied for a loan.

Another way that a private consolidation or refinancing can cut your monthly payments is by extending the length of your loan.

For example, if you refinance a year student loan into a year loan, you will see a dramatic cut in your monthly payments. But signing up for a longer loan also comes with a big caveat, as we explain in the following Con. In the case of federal loan consolidation, you may be able to reduce your monthly payments if you qualify for one of the government's income-based repayment plans.

These plans set your monthly payments according to how much you earn or how much you can afford to pay. While a longer-term loan can mean lower monthly payments, you could end up paying tens of thousands of dollars more over the life of the loan because of the accruing interest. Another benefit of refinancing your private loans is that you might be eligible to sign for the loan on your own.

Dropping a cosigner , who is typically a parent or another close family member, not only gets them off the hook for your debt, but it may raise their credit score and allow them to access new lines of credit if they need to. Federal loans don't typically involve cosigners. If you consolidate a federal student loan with a private lender, you'll lose the option to sign up for an income-based repayment plan.

You'll also no longer be eligible for the federal loan forgiveness and cancellation programs. These are major reasons to consolidate your federal loans only through the federal program. If your student loan is still within its grace period , wait until that ends before you refinance it.

Keeping track of multiple student loan payments, on top of all your other bills, can be a hassle. Consolidating will reduce your student loan bills to just one or two, if you consolidate your private and federal loans separately, as is advisable.

Many private lenders even offer a slightly lower interest rate if you enroll in an automatic payment plan. This option saves you a small amount of money each month, and it helps you to avoid ever forgetting a payment. Some borrowers opt to consolidate their federal student loans into a private loan, but that can be a mistake, Aliche says. You may be getting a lower interest rate, but if you lose federal loan benefits that you're currently utilizing, consolidating could end up costing you money.

One reason is because there are several repayment options with federal student loans that offer income-based repayment plans to make payments are more manageable. If you consolidate your federal student loans into a private loan, your monthly payment may no longer be tied to your monthly pay. That means should you get a lower-paying job, you may find your loan repayment obligation is now too high and depending on your agreement, you may not have a lot of wiggle room. Before you even start to think about consolidating, make sure you have a good track record of on-time payments, a stable job and a credit score that's in the good to excellent range.

Typically, you need to have a credit score over to refinance your student loans. If you're missing any of these components, you may need to get a co-signer, such as a parent. When you're looking to consolidate, Aliche recommends focusing on finding a solution where you have fewer payments than you had before.

Do your homework and explore the refinancing options with multiple lenders. It's also worth exploring the lender's track record with customer service. There are several online tools that can help you compare lenders' reviews and rates side-by-side and the Consumer Financial Protection Bureau has a consumer complaint database that includes student loan lenders. Additionally, make sure you read the fine print and that you understand all of the loan terms.

Some lenders provide flexible options for repayment, including options to make interest-only payments and an interest rate reduction after a certain percentage of the principal has been paid off. But if you default, you may be on the hook for expensive fees from collection agencies. Ideally, you want to consolidate at a lower interest rate than the other payments had on average. But be careful that you keep the monthly payments reasonable for your budget. You will probably lose certain benefits if you refinance.

Borrowers working in public service or as teachers in certain low-income schools may be able to get loan forgiveness for certain federal loans. If you refinance your federal loan with a new private student loan, you will no longer be eligible to participate in these federal loan forgiveness programs. You may also lose the protection of loan discharge or forgiveness in the case of death or permanent disability, which you get with federal student loans.

Not all private loans offer loan discharge benefits or forgiveness in the case of death or permanent disability. Active-duty servicemembers might also lose benefits on pre-service obligations if they refinance. If you are a servicemember on active duty, you are eligible for an interest rate reduction under the Servicemembers Civil Relief Act SCRA for all federal and private student loans taken out prior to the start of your service.

If you consolidate your loans while serving in the military, you will lose the ability to qualify for this benefit. Don't see what you're looking for? Browse related questions Should I consolidate my private student loans?

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