Q: I’m a 22-year-old college student about to graduate with an insane amount of debt. My loans come from multiple lenders and I was wondering: Would it be smart — or at least possible — to take out a consolidation student loan from a bank or credit union and pay my loans with that big loan so I only have one payment each month? — Heather
A: Student loan consolidation is worth a look, but proceed with caution. Although lumping myriad loans into one may be easier to manage and can provide other benefits — such as releasing a cosigner — you don’t want to lose benefits that some of your existing student loans may offer. And, although consolidation can lock in a fixed interest rate, providing protection if rates go up, you’ll be stuck with the higher APR if rates dip.
If you have a combination of federally-guaranteed student loans (Stafford and Perkins loans are common examples) and private loans, you may not be able to consolidate all loans under one roof. In most cases, federal student loans are eligible for consolidation and private loans can be consolidated, but not both together.
For private loan consolidation, a good place to start is CUStudentLoans.org, a consortium of credit unions that provide private consolidation loans. Other big banks like Citi, Chase, Wells Fargo, etc. may also have programs. SimpleTuition (affiliate) is an online student loan broker that may be able to help you shop consolidation loans from a variety of sources.
For federal student loans, start with your loan servicers, who may offer or be able to recommend consolidation options. If you’re unsure what kinds of federal loans you have, visit www.nslds.ed.gov. You’ll need your FAFSA PIN which you can retreive here: www.pin.ed.gov.
Whether you qualify will depend on your credit worthiness, employment situation, and the size of your loans. Some lenders may cap how much they’ll lend for consolidation. In the meantime, the best approach is to get organized with your loans via a spreadsheet or a free online tool to track interest rates, due dates, grace periods, and payments. If you have several student loans, Tuition.io is a new app that can help you get to that level of organization.
Occasionally I publish answers to selected readers’ money questions. I welcome your opinion in the comments. Send questions to [email protected]