“If the terms you’re going to get are the not as generous as the terms you already have, consolidation is probably not a good idea,” she says.
Regardless of whether consolidating federal or private loans, there is a catch.
While loan consolidation can sometimes dramatically lower a borrower’s monthly payments, Kevin Walker, co-founder of the college finance site Simple Tuition.com, says it can also cost you.
Once the application is submitted, the federal government estimates that it takes 60 to 90 days to officially complete the consolidation process.
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.
Betsy Mayotte, director of regulatory compliance for the student debt assistance group, American Student Assistance, makes sure to tell borrowers to stay away from consolidation loans that combine federal and private loans.
Regardless of how the market fluctuates, borrowers will never pay more than 8.25 percent on their consolidation loans.