Consolidating student loans before 7 1
Consolidating both types of loans excludes borrowers from federal protections.
When eyeing consolidation options for private loans only, Mayotte says borrowers should evaluate the new loan’s hardship protections and repayment terms in addition to the interest rate.
When it comes to consolidation, the types of loans you have matters, but most federal loans, including Stafford, Perkins, Direct Plus and Supplemental loans, can be consolidated with other federal student loans.
“The interest rate on (federal) consolidation loans is an average of the interest rates on the (federal) loans you’re consolidating,” says Ken O’Connor, director of student advocacy for Fynanz, a New York City firm providing technology for the private student loan market.
Instead of making multiple payments to multiple lenders, the borrower only has to pay off the new consolidation loan, says Michelle Pezzulli, vice president of operations for Credit Union Student Choice, a student lending service provider in Washington, D. “That new loan will have its own interest rate; it will have its own repayment terms; it will have its own terms and conditions,” she says.
This can be attractive to borrowers because the consolidation frequently results in longer repayment periods and lower monthly payments.
But borrower protections and repayment options on private consolidation loans can vary wildly from lender to lender.
“The downside of getting a lower monthly payment is that you’re going to subject yourself to substantially more interest charges over the life of the loan,” he says.
“With (our student loan program), if the borrower makes 12 months of on-time principal and interest payments, they can request to release the co-signer,” he says.