Guest Author - D. Lynn Byrne, Ph.D.

If you are graduating this semester and haven’t made payments on your educational loans while you were in school, your loans are about to come due. If you have multiple loans and lenders, you might want to consider loan consolidation.

What is loan consolidation?
Consolidation is the process of putting together all of your smaller student loans (which may have differing interest rates, lenders and guarantors) into one larger loan.

What are some of the benefits of consolidation?
When you consolidate multiple loans, the greatest benefit to the borrower is that you will now have a single loan to track and make payments on. You’ll also have one interest rate to contend with and one lender to work with if you have issues. The biggest benefit of consolidation, however, is that you generally have a much longer period to pay off your educational loan. Keep in mind that by extending your repayment time, you may actually pay more in the long run. But, your monthly payments will likely be lower.

Can all loans be consolidated?
Yes and no. Whether or not you can consolidate all of your educational loans is going to depend on the lender you select for the consolidation (some lenders will not work with non-federal loans). In the U.S., the only entity required to accept all eligible loans for consolidation is the Direct Consolidation Program administered by the U.S. Department of Education. There are many other lenders that do educational loan consolidation, but they are not required to accept non-federal loans.

Your original lender may also have some impact on your ability to consolidate. The lender must agree to relinquish your loan (generally, this isn’t a problem as lenders like to have accounts settled and through consolidation your new lender pays off your original lender). If you have an institutionally funded loan or an alternative loan, you will need to work with that lender directly to see if they will allow you to consolidate your loan.

When should you not consider consolidation?
You should steer away from loan consolidation if you are still in school or have graduated but anticipate continuing on in your graduate studies and have eligibility for loans remaining. If you are going to take out additional loans in the next year or two, wait to consolidate so that you can include these new loans. You should also look at other options if you have paid off half or more of your loans or if consolidation would actually increase interest rate you are paying on most of your loans.

Where can you find more information on loan consolidation?
Contact your lender or your local bank or credit union. Most lending/banking/financial institutions will have consolidations programs available. If you have non-federal loans in your loan mix, consider contacting the Federal Direct Consolidation Program Information Center.
Until next time! Lynn Byrne