Just like private education loans, private consolidation loans often have variable interest rates – meaning your interest rate can change over the life of the loan – the interest rate you are offered depends on your credit score.
The amount of time you have to repay the loan can vary from 10 to 25 years depending on the lender and the amount of the loans being consolidated.
Read the fine print – your consolidated loan may not have the same terms as your original loans.
Assessing Your Situation Pursuing Loan Rehabilitation Applying for Loan Consolidation Community Q&A Your federal student loans will officially move from delinquent status to “default” status if you do not make your monthly payments for 270 days.
If you default on your student loans, your credit rating will fall, making it difficult for you to rent an apartment, get a car loan, or sign up for a cell phone plan.
In addition, if you plan to go back to school, you will not be able to access further federal financial aid until you have gotten your loans out of default.
Consolidating private loans into a private consolidation loan may be a good idea if you get a better deal.
Like federal consolidation loans, private consolidation loans combine your existing private student loans into one larger loan – you are replacing your original private student loans with this new loan.
You will have a single monthly payment for your new private consolidation loan, which may be simpler.
Private student lenders may offer an interest rate reduction for creditworthy borrowers seeking to consolidate their private student loans.
This can save you money over the lifetime of your loan.
But be careful—defaulted Direct Consolidation Loans can't be reconsolidated, so you only get one chance to use consolidation to get out of default. You have Federal Family Education Loans, or FFEL (federal loans from a bank or private lender like Sallie Mae) and you want those federal student loans to be eligible for Public Service Loan Forgiveness (since only Direct Loans are eligible). It's important to understand the potential disadvantages to consolidation.
For instance, you'll have the option of taking longer to repay, so a consolidation loan could cost you more over time (since interest keeps adding up until you're done).
If you consolidate while you are in school—currently allowed under limited circumstances—you'll lose your grace period.