Positives and Negatives to Consolidating School Loans

Student loans can be one of the most difficult types of loans to pay off because of their strict rules. Often, having many different sources of student loans and payments causes headaches for borrowers. If your student loans have become too unwieldy, there are ways to consolidate them, so you should see if it is right for you.

When you consolidate student loans, your new lender is an institution that agrees to take up all of your loans and combine them into one new, fixed-rate loan. So, rather than having to deal with multiple institutions and variable interest rates, you will have one fixed interest rate from one lender. Similarly, your new rate will have a certain term, which may be longer than the terms of your current student loans. You can either consolidate through the federal government, which offers a student loan consolidation program, through private lenders, or potentially through your current lenders.

There are positives and negatives to consolidating student loans. The fixed interest rate is especially good if interest rates rise in the future – a variable interest rate would have become more expensive, but the new fixed interest rate will not. On the other hand, if interest rates were to fall, your new fixed rate will not be as attractive. Similarly, if the term of your new loan is longer than the terms of your previous loans, your monthly payment will go down. On the other hand, you will pay more in interest over the course of the loan and you will be paying for longer. However, the interest paid on qualified student loans may be tax-deductible.

Before you decide to consolidate, you must consider what your new loan will be. Is your credit better now than when you took out the loan, and will you have a better interest rate? Do you feel comfortable paying for the consolidated loan for a longer time period than your current loans? It may be wise to meet with an expert to see whether consolidation is right for you. Still, student loans can be very expensive, and consolidating can be a good way to make them more manageable.

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Graham Billings

Graham Billings is a senior at the University of North Carolina at Chapel Hill with a double major in Economics and Political Science. He plans to graduate in December of 2009 and then attend law school in the fall of 2010. He is a member of the Economics Club at Carolina, which brings in speakers and hosts events in order to discuss current economic issues and help those who do not have a background in economics become more familiar with it. He is a National Merit Scholar and Dean’s List recipient. He is originally from Greensboro, North Carolina and attended the Early College at Guilford for high school, taking classes at Guilford College. In addition to economics, his academic interests include the legal and political system. He headed the only student-run, high school-level Honor Court in high school and participated in a national model Congress in San Francisco, run by Harvard students, and won awards of excellence for his work on the mock Supreme Court. Additionally, he tutors Carolina students in economics on a volunteer basis.

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