Consolidating student loans is a fairly easy process. As you begin to rack up student loans, you will start getting phone calls from lenders trying to get you to consolidate. Before you agree to anything, know all of your options and gather information.
There are two main avenues for consolidating student loans—a federal loan program and private consolidation. The first is the most simple, and is processed by the same federal program as the Stafford loans you undoubtedly have. These consolidation loans are processed through private lenders, but lender must follow certain guidelines regarding the interest rate and repayment plan options. For example, your interest rate cannot exceed 8.5%, and is a fixed rate.
Federal consolidation loans have several repayment plan options. A standard term would be similar to your current loan agreements. An extended term allows you to extend the length of the loan with even payments, and a graduated loan extends the length of the loan with payments rising at intervals of several years. Many of these are based on your income and ability to pay. To obtain these loans and qualify for a repayment plan, you may need to submit a variety of personal and financial information to the lender before your consolidation can be processed.
Consolidating student loans through the federal program gives you a distinct benefit that you may not receive from a private consolidation. In most cases, federal consolidation will extend the time you have to repay your loans. In fact, based on circumstances and the repayment plan you choose, you may be able to lengthen the term of your loan for up to thirty years. While you will pay more interest, you will also be able to better manage your finances and budget.
You can consolidate your loans at any time, and in most cases consolidate again later when you have accumulated more academic debt. There are only a few reasons not to do so. First, you do not want to refinance if your loans are primarily subsidized, meaning that the federal government is paying your interest. Consolidating student loans, even through a federal program, will negate any interest subsidies, and you will be paying the interest. If you only owe one or two loans right now but will have more in the future, you should probably go ahead and wait to consolidate as well.