How Student Loan Debt Consolidation Can Help

If you have more than one student loan, you may be struggling to balance repayments each month. Debt consolidation is a possible option for you to consider. We have produced the guide to take you through the pros and cons in order to help you make an informed decision about your finances.

What is student debt consolidation?

It is where a consumer takes out a new loan and uses this loan to pay off other preexisting student loans. The borrower then repays the one new loan according to its terms.

Federal and private student loans cannot be consolidated together

You can consolidate all of your federal student loans together and all of your private student loans together but take note that the two cannot be combined.

Who is eligible to consolidate their student loans?

For the majority of consumers, the following eligibility requirements apply:

  • If you are not currently studying or are enrolled a part-time program of study
  • If you are currently making loan repayments or are within the “grace period” of the loan
  • If you have not defaulted on any loans and have a good repayment history
  • If you have a minimum of $5,000 to $7,000 in student loans.

Also, note that you can only consolidate loans that are purely within your name. For example, if you have joint loans with your spouse or loans co-signed with your parents, these will not be eligible for consolidation.

Minimum amounts for private loan and federal loan consolidation

Aside from the above, each private lender has individual minimum loan balance necessary for student loan consolidation. It is important to note that there is no minimum loan balance for federal loans consolidated through the Federal Direct Consolidation Loan program.

What are the main advantages of student loan debt consolidation?

  • A more streamlined bill payment process with one monthly repayment and one date
  • The possibility of a longer repayment term to help spread the repayments over more time
  • Lower interest rates if you have a decent credit score and consolidate multiple loans
  • Benefits of obtaining a fixed rate of interest rather than a variable rate
  • Being able to qualify for an alternative repayment plan if your life circumstances have altered since the time you took out the loan(s)
  • Being more in control of your finances

Options for federal loan consolidation

The following options may be available to those looking to consolidate federal student loans (Perkins, Stafford or PLUS):

  • Extend repayments of your loan from 10 years to anything between 12-30 years
  • Start graduated repayments so that you can start paying a lower monthly amount and increase the amount every two years.
  • Establish an income contingent repayment plan so that you can pay an amount commensurate to your salary
  • Borrower benefits from some lenders, such as rebates or interest rate discounts

Some disadvantages of student loan debt consolidation

Not all consolidation loans are equal – here are some possible cons to taking one:

  • Larger interest payments
  • A larger overall amount of debt due to charges and fees
  • A repayment term which is significantly longer
  • Missing out on borrower benefits from your current lender, such as interest rate discounts or rebates
  • Prepayment penalties for early settlement of the loan
  • Losing a grade period if you have consolidated during the grace period.

Choose your lender carefully

We can help introduce you to reputable, professional and well established loan consolidation specialists that want to help you consolidate your student debt the right way.



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