Government Loan Consolidation
Most of those with government student loans will be better off consolidating them when the time comes. Consolidating loans is the process of combining all federal school loans into one low interest loan to be repaid to a single lender.
In order to be eligible for government loan consolidation the student must meet a few criteria. They must have more than one federal loan; otherwise consolidating is unnecessary.They must be either in their six month grace period or in repayment and good standing. And they typically must owe a minimum of $10,000.
Those students that meet all the criteria can have their loans consolidated into one debt. This will reduce their monthly payments and lower their interest rate. Another benefit of consolidating government loans is the ability to extend the loan so payments are more manageable. Keep in mind this will increase the total amount paid over the life of the loan.
Government vs. Private Loan Consolidation
Both government loans and private loans can be consolidated, but they should never be consolidated together. Doing so would result in a consolidated private loan that can no longer take advantage of the benefits offered to government loans.
For instance, if you were to consolidate government loans and private loans together, you would not be able to defer payments should you decide to go back to school. You cannot claim interest on your loans as a tax deduction. And you cannot stall payments due to economic hardship. Basically, when you consolidate government loans with private loans, you lose all flexibility that makes government loans so attractive.
Private loans won’t lock in a fixed interest rate, even when consolidated. Varying rates are bad because they can change frequently, sometimes getting much higher than the current rates. If the rate stays high for too long you could end up paying much more than necessary on your loans.
When you consolidate government loans you lock in to a low, fixed interest rate. It will stay at this rate for the life of the loan, meaning your monthly payments will always be the same.
