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For individuals with multiple student loans living in the United States, the process of consolidating federal student loans should include both an evaluation of payment terms as well the consideration of interest rates. In general, those consolidating federal student loans should also avoid consolidating federally guaranteed loans under a private loan program. Those who have student loans from other countries should contact the appropriate government agency to find out what its options are for student loan consolidation and repayment.
For some people, consolidating federal student loans makes good financial sense. Without loan consolidation, an individual may have difficulty making monthly payments on his student loan. In such cases, the student may suffer significant financial penalties, including damage to his credit and the possibility of being sued for his student loan balance. Loan consolidation enables him to extend the payments on his student loan so that he can reduce his minimum monthly payment. Student loan borrowers should also consider that extended repayment under loan consolidation means that they will likely pay a lot more interest on their loan over time. If an individual is capable of making the minimum monthly payment on his non-consolidated loans, he should weigh the consequences of consolidation against quick repayment carefully.
For individuals who took out adjustable-rate student loans prior to 1 July 2006, consolidating federal student loans may be a good way of reducing their interest rates. After this date in July, federal student loans were issued on a fixed rate basis, which may mean that there is no savings in consolidating student loans. Another consideration is that there are some loan forgiveness programs that enable people to eliminate student loan debt through a combination of public service and making consistent payments for 10 years on a consolidated student loan. If an individual goes into an approved area of public service, consolidating federal student loans can enable him to quickly cancel his loan balance after completing his service.
Federal student loan programs typically offer borrowers significant protections that are typically not provided to borrowers of other types of loans, including private student loans. For example, federal student loan borrowers typically have the right to delay repayment of their loans under certain circumstances, such as financial hardship or their return to school. Private student loan companies typically do not offer bowers these rights, however, even though borrowers are legally obligated to repay private student loans and cannot discharge them in bankruptcy. As such, those who have federal student loans should only consolidate their loans under a federal student loan consolidation program and not through a private lender, as consolidation with a private lender can cause them to lose their rights to loan deferment, loan forbearance, and affordable payment plans.