Always Consider The Cost

Whenever you find that the agency charges an upfront fee, be wary of it and ensure that you check the credentials of the said agency before making any payment.

As you can see, each kind of consolidation loan applies for different scenarios.

Always Consider the Cost


You should keep in mind that although consolidation can simplify loan repayment and lower your monthly payment, it also can significantly increase the total cost of repaying your loans. Consolidation offers lower monthly payments by giving borrowers up to 30 years to repay their loans. So, you'll make more payments and pay more in interest. In fact, in some situations consolidation can double your total interest expense. If you don't need monthly payment relief, you should compare the cost of repaying your unconsolidated loans against the cost of repaying a consolidation loan. You also should take into account the impact of losing any borrower benefits offered under non-consolidated repayment plans. Borrower benefits, which may include interest rate discounts, principal rebates, or some loan cancellation benefits can significantly reduce the cost of repaying your loans.

Once made, Federal Consolidation Loans cannot be unmade. That's because the loans that were consolidated have been paid off and no longer exist. Take the time to study your consolidation options before you submit your application. The following checklist has been designed to help you determine whether and how you should consolidate your loans.

Consolidation Checklist

The very first step: Take inventory of your student loans.

For information on your student loans, review your loan documents, and contact your lender or loan servicer. If you are uncertain of your current lenders or loan servicers, you can find them by going to www.nslds.ed.gov.

Monthly Payment Amount

If you are not in repayment status yet, estimate your monthly non-consolidated loan payment based on the current interest rate and your loan balance. You can get payment amounts by calling your lender or loan servicer.

Next Steps

* Determine whether your monthly payment exceeds the percentage of your income to be allocated to student loan payment. This percentage should be based on a realistic budget.
--If payment exceeds monthly allocation, reevaluate budget
and assess income situation.
* Consider deferment or forbearance option for short-term payment relief needs.
--If debt relief needs are long term, consider consolidation.
* Select loans for consolidation.
* Determine monthly payment and total interest costs for Consolidation Loan and compare to cost of repaying loans without consolidation.
--For help in calculating monthly payments, contact your lender or loan servicer.
* Consider the impact of consolidation on future deferment options, cancellation options, and other borrower benefits such as interest rate discounts or principal rebates, which can significantly reduce the cost of repaying your loans. You might lose some discharge (cancellation) benefits or deferment benefits if you include certain types of loans in your Consolidation LoanFederal Perkins Loans, for example. To find out more about the impact consolidating might have on deferment and cancellation benefits, contact the holder of your loan.
* If you decide consolidation is right for you, contact your lender to begin the consolidation process.
* If still in the grace period, consider consolidating approximately two months before the end of the grace period to allow enough time to have your Consolidation Loan processed before the grace period expires, yet not so early that you lose too much of your grace period if you have a FFEL Consolidation Loan. (For FFEL Consolidation Loans, if you consolidate during the grace period, you give up whatever portion of your grace period remains. You retain all of your grace period, however, if you have a Direct Consolidation Loan.) Some FFEL lenders offer to hold disbursement of Consolidation Loans until the end of the grace period to enable borrowers to minimize their interest rate and maximize their grace period.
* Remember that if you consolidate during your grace period, you can lock in an interest rate at least a half percent lower than the current repayment rate.
* When filling out the consolidation application, provide complete address information, include two references, and sign the promissory note.
* If already in repayment, make sure to continue making payments on your loans until consolidation is completed.
--If you need immediate payment relief, request deferment or forbearance.
* If you have questions about consolidation, do not hesitate to contact your lender or loan servicer. Check your loan documents for the toll-free customer assistance number.