Disadvantages Of Student Loan Consolidation

A while back we talked about the benefits or advantages of student loan consolidation. Let us now look at the cons of consolidating your student loans.

• If your student loans were taken out recently then the chances of you saving on interest rates are very low. Consolidating your student loans is not going to help you much. The rate of interest on federal student loans post 2006 are all fixed rate of interest and in all probability your consolidated loan interest rate will end up being the same.
• If by consolidating your loan you find that the payment term is extended quite a bit then you are better off not consolidating. Yes, your monthly payments might reduce but by extending your loan payment term you are effectively paying more money over the life of your student loan.
• Loss of deferment period. Usually student loans will have a grace or deferment period of about 6 months from the time you graduate before loan payments begin. If you consolidate your student loans then you loose whatever grace period you have left and your consolidated loan payment will begin immediately.
• Loss of subsidized interest on your Perkins Loan – If you consolidate your Perkins loan you will forfeit the subsidized interest rate benefit of the Federal Perkins loan. This is different in the case of the Stafford loan. In the case of the Stafford loan, you will still continue to get the benefit of subsidized interest rate even after loan consolidation.
• Another con of consolidating your Perkins loan would be the loss of the nine month grace period and also the forfeit of Perkin loan forgiveness options. If you have a Perkins loan then consolidating your loan is best avoided.

Consolidating your student loans is not automatically the right choice. Yes there are a lot of benefits to student loan consolidation but it has to make sense on the part of the borrower. The borrower has to weigh the pros and cons and then decide if loan consolidation is the right choice.

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