When Should I Consolidate My Student Loan?

If you’re like one of 44 million Americans in the U.S., you have student loans. The question is always when to consolidate them. Essentially, you have three options: consolidating your loans after you graduate, leave school, or drop below full-time enrollment. At this point, you can choose from government or private consolidation, generally for a term of 10 to 30 years. This makes it easier to keep track of your payments without having to send separate payments to several lenders.

When to Do Federal Student Loan Consolidation

Federal student loan consolidation gives you a convenient option when it comes to paying off your student loans. To be eligible for this type of consolidation, you must have at least one loan from the Federal Family Education Loan program or the Federal Direct Loan program.

When you choose this option, the government pays the balance of all your loans. The interest rate then becomes a weighted average of these loans to the next-highest 1/8 percent. For example, if the weighted average of your loans is 7.17 percent, your consolidated rate would become 7.25 percent. Once you consolidate, you generally have 60 days until your first payment, paid out over a term of 10 to 30 years.

If you’re worried about when to make this change, the answer in most cases is the sooner the better, especially if you routinely miss payments because you have trouble keeping track. With consolidation, you’ll see three major benefits. It often reduces your monthly payments, creating more money for living expenses. In addition, it simplifies the repayment process, as well as providing more flexible payment and forgiveness options without any additional fees. The downfall is that it doesn’t do anything to lower your interest rate, and often these loans actually raise your rate.

When to Do Private Student Loan Consolidation

When to convert your loans to a private student loan consolidation depends on your credit score, monthly payment amount, and when you want to pay off the loan. Also known as student loan refinancing, this type of consolidation takes into account your job, creditworthiness, income, and educational background.

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If you qualify for these loans, you may want to file immediately, as they can lower your interest rate to as low as 2 percent. Unlike a federal loan consolidation, it can pay off both your private and federal loans, where the federal loan consolidation only takes care of government-issued loans. If you already have a well-paying job, it’s in your best interest to choose this option.

However, if your income isn’t quite steady, you may want to hold off until you become financially stable. Student loan refinancing strips you of the protections of a federal loan, meaning that you may lose interest-free deferment payments, access to income-driven repayment, and student loan forgiveness.

There’s no right or wrong time to consolidate your student loans, but it’s important to start weighing your options almost as soon as you graduate or after the deferment period. Both choices have benefits, but with a bit of critical thinking and knowing your needs, you can find the best consolidation available.