Making one’s way in the workforce today is as challenging as it has been in at any time in decades, especially as a recent college graduate. Sure, college grads have a distinct advantage over their less-educated competition due to their advanced degrees. However, most grads are also saddled with tens or hundreds of thousands in student loan debt.

Why Student Loan Consolidation Is A Good Idea

Most grads with student loan debt have multiple student loans. This is especially true for those who have been to graduate school. Having multiple loans usually means paying different rates – often variable rates – for different loans. Also, the multiple loans can have different payback periods.

Through student loan consolidation, however, grads can simplify their payments and potentially lower their monthly payment amount significantly.

Getting A Consolidation Loan To Refinance A Student Loan

You can find, apply for and receive a consolidation loan to refinance a student loan fairly easily. You will need to apply for the loan, through multiple lenders if you are seeking private loan consolidation (see below). If you do apply with multiple lenders, you will have a better chance of getting the best-possible loan rate.

Federal Or Private?

An important decision to make as you embark upon the student loan process is whether you should apply for a federal or a private consolidation loan. The main difference is that federal loan consolidation can only be arranged when you have existing federal loans, while private loan consolidation is for when you have private loans.

The federal loan consolidation process does not require that you undergo a credit check, and your interest rate is guaranteed to be fixed. Your new fixed rate will be calculated by taking the weighted average of your existing loans, rounded up 0.125%.

By contrast, private loan consolidation usually requires a credit check, with the rate you are offered being determined in part by your credit score. Private consolidation loans can also require that you pay loan origination fees.

On the other hand, private loans allow more flexibility for interest rates, as they can be variable or fixed.

Advantages Of Consolidation

The main advantage of student loan consolidation is that you will have lower monthly payments, since your repayment period can be stretched to a longer period – up to 30 years. Also, many students like the fact that they only have to manage a single student loan bill each month, instead of two or more. And, by having all of your student loan debt rolled up into a single loan with the same interest rate and repayment period, it is easier to run what-if scenarios for early pre-payment.

Disadvantages Of Consolidation

One real disadvantage of loan consolidation would be if you were almost done paying back your loans: there would be little reason to go through the consolidation process. Another disadvantage is that, due to the longer repayment period, you will likely end up paying more in interest charges over the life of the loan than if you had stayed with your shorter payback periods. However, this downside is not all bad: you can always repay your loan early, thereby reducing the total cost of your loan. With student loan consolidation, there is no penalty for early repayment.