I got a question last week from Josh, one of my readers. He asked a question that I think a lot of us yopros (young professionals, that’s caught on, right?) are probably curious about: consolidating our student loans. Oh students loans, at the time they gave us what we needed: cash to carry on with our education. ‘No payments till you graduate!’ was their battle cry, and now that we’ve graduated, reality sets in and we get hit with the bill. Almost as soon as we get our first student loan bill, we start getting info about consolidating our loans. Hopefully you’re as hesitant as I first was when I heard about it. The offer seems pretty good, but is it smart to consolidate your loans?

What consolidating really is (and if it’s not, beware!)

Let’s be honest with ourselves; if we could just take care of many things in one step, we would. If you were anything like my wife was when she graduated! you probably have several smaller, separate loans, probably one for each semester you were in school (oh wifey and her extra semester ‘victory lap’). The pain point of having too many loans exists for borrowers as it does for lenders. Nobody wants to do more work than they should. Consolidating your loans involves the process of bringing all your loans under one borrower, so you deal with one entity instead of potentially eight. Even if you had loans through the same lender, consolidating brings them all under one roof and one account. When we write our monthly check for our loans now, we pay one bill and it gets divided for us into eight separate smaller payments, one for each loan.

What consolidating isn’t.

Consolidating your student loans won’t magically make a portion of them disappear.   After consolidating, you’ll still owe the same amount of money that you did before consolidating, and if be wary of anyone that tells you differently. Consolidating won’t truly ‘lower your payment’, you might pay less each month but it’ll come back to haunt you with more interest.

Why should I consolidate?

Consolidating your loans often makes your life easier and could save you money. Instead of the hassle of keeping up with multiple loans and multiple payments, you’ll have just one payment to worry about and make each month.  Sometimes too you can get a lower interest rate on your loan by consolidating, or perhaps ‘lock’ your rates in and avoid them going up in the future (rates are so low they probably won’t go lower in the future).

Any red flags to watch out for?

Well, the good rule of thumb, ‘if it’s too good to be true, it probably is’, always applies. Be wary, as I said earlier, of companies that promise to lower your debt or your monthly payment. It wouldn’t make sense to have consolidation increase your interest rates either. Also, as with most potentially confusing, complicated yet popular financial programs, there are always fakes and scammers out there.  There are some companies that say they consolidate but actually do other things with your debt, things that aren’t helpful to you. If you can, and your loans are subsidized/Stafford type loans (aka public, not private), definitely go thru Nelnet (part of the Department of Labor), it was a relatively quick and easy process.

As with any big financial decisions, don’t rush into it, do a little research and read the fine print. Your thousands of dollars of debt is a pretty big part of your life, so be careful with it!

All in all, I do recommend consolidating your loans. Potential cost savings aside, it’s certainly less of an administrative burden and potentially several less headaches to worry about!

Hope you enjoyed the article! Here’s another (or two) you might like:

Credit forgiveness programs

Enjoying college while still on a budget

Paying off student loans