The Biggest Chooser
Why Consolidation Is A Heavy Decision
If you borrowed more than one federal student loan for school, consolidation could trim the number of bills you pay each month … but it may not be the best way for you to shape up your financial situation.
Much like starting a new diet, you should be sure the changes are good for you—and consolidation isn't right for everyone.
Before you become "The Biggest Chooser," consider these factors when weighing your decision:
Team One Big Loan
Not Using Consolidation
Team Lots Of Loans
You only have to pay one bill each month ...
Have trouble remembering all your bills' due dates? Consolidation helps by giving you just one payment for all your federal student loans.
… That convenience comes with some drawbacks, though.
Most notably, once you sign on the dotted line, you can't "unconsolidate" your loans—no matter what.
Consolidation could save you money in the short term …
Depending on how much you owe, consolidation may extend the amount of time you have to finish repaying your loan, which slims down the amount you pay each month.
… But it'll cost you more over time.
Extending the amount of time you take to finish repaying your loan can significantly increase the total amount of interest you'll pay over the life of your loan.
Consolidation could help you gain eligibility for some loan forgiveness benefits …
Some of your loans may earn eligibility for Public Service Loan Forgiveness if you consolidate into the Direct Loan program.
… And lose eligibility for some loan forgiveness benefits you may already have.
You don't have to consolidate all your loans, but if you forget to exclude your Perkins loans, you may miss out on Perkins-specific forgiveness options.
Consolidation locks in your interest rate …
If you have variable-rate loans, consolidation gives you a firm, fixed interest rate for the life of your loan, which can be a major money saver if the rate is low when you consolidate.
… But a fixed interest rate isn't always a good thing.
Your loans' variable interest rates could drop. If that happens, you'll save money by not consolidating. (Unfortunately, there's really no way to predict if your variable interest rates will pack on the percentage points or get slender in the future.)
Still Sweating The Details?
Here's another way to figure out whether consolidation addresses your problem areas: Think about how the items in each list below relate to your situation. Then, check off the ones that accurately describe you. When you're done, the list with more check marks probably represents the team you should join.
Team One Big Loan may be a healthy match if you:
- Can't afford to pay all of your federal student loan bills every month.
- Are willing to pay more in interest if it means lower monthly payments.
- Get sick to your stomach when you think about keeping track of all of those monthly payments, balances, and due dates for your federal student loans.
- Don't have any Perkins loans, or Public Service Loan Forgiveness is a better deal for you than the Perkins-specific loan forgiveness options.
- Have variable interest rate loans and you don't think the rates will drop in the future—or you're concerned that your variable rates may increase.
Team Lots Of Loans may be the right fit if you:
- Can afford to pay all of your federal student loan bills every month.
- Want to pay your loans off faster and pay less in interest.
- Don't have any problems staying on top of how much you owe, when your payment is due, or where to send your payments.
- Have Perkins loans, or you won't qualify for Public Service Loan Forgiveness even if you do consolidate.
- Have variable interest rate loans and you're worried about missing out on lower rates if they drop in the future—or you don't think your variable rates will increase.
American Student Assistance® (ASA) Internal Research: asa.org
Federal Student Aid: studentaid.ed.gov
The resemblances of any other company's trademarks in this infographic are for parody purposes.