Does it hurt to consolidate your student loans?

Consolidation may or may not be the best answer for you – it depends on your goals. If you want to stretch out your loan repayment, get the lowest monthly payment, and lock in your interest rate, then consolidation may be the thing to do. Or if you are looking to pay the lowest amount of interest over the life of your loan, consolidation might or might not be the thing to do.

If you have loans with a variable interest rate, odds are they are currently at 2.48%. If that is the case, it might be a good idea to consolidate just to lock in the interest rate. Loans with variable interest rates change once a year on July first. The highest they can go is 8.25%, so you can see how low they are right now. Locking them in with consolidation could save you a lot on interest over the life of your loan. If you have loans with a fixed interest rate, your interest rate is in the range of 5.6% to 6.8% depending on the type of loan and when you took it out. But those interest rates don’t change, so you would gain nothing by consolidating. In fact your interest rate would be rounded up to the nearest 1/8th of a percent, which would cost you more in interest.

I have listed in the sources the website for Direct Loans (the Department of Education). They are the only company I am aware of that is currently consolidating federal student loans.

I have also listed a website where you can plug in the types of federal student loans you currently have and it will give you a break down of what a consolidation would look like for you on different repayment plans.

Please note that there is a danger of consolidating federal student loans together with private student loans. You have forbearance, deferment, loan forgiveness in certain situations, and built in life and disability insurance with federal student loans. Private loans may or may not have these. If you consolidate the two types together, you lose the options and protection provided by federal student loans.