How student loan debt consolidation works

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Consolidation simplifies your student loan debt into a single loan.

When you consolidate student loans, you smush all of your federal student loan debt into a single consolidation loan. It's as simple as that.

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Consolidating student loan debt: pros and cons

It doesn't reduce what you owe. But instead of making multiple payments, you'll make one payment each month.

That streamlining isn't the only benefit.

Pros

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Consolidation usually works out to a lower monthly payment.

When you consolidate federal student loans, you can lower your monthly payment by changing the repayment term.

Automatically after graduation, borrowers are enrolled in a 10-year standard repayment plan. Some consolidation loans can stretch repayment out over 30 years — and shrink your monthly payment.

And here's another benefit: As with all other federal student loans, consolidation loans come with fixed interest rates that don't change. You'll never be surprised to learn that your rate is going up.

Cons

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Consolidation can raise your student loan interest costs.

One negative of a longer-term consolidation loan is higher interest costs.

You'll pay a lot more total interest over a 30-year term than a 10-year term. But if you can't afford your current collection of monthly payments, paying more interest over a longer-term consolidation loan may be very appealing.

Another downside is that consolidation won't reduce or wipe away your student debt, the way a couple of other programs can.

Is consolidation right for you?

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You might be able to eliminate some of your student debt if you work for a nonprofit or government agency.

Before you consider consolidation, see if you qualify for either an income-driven repayment plan or public service loan forgiveness.

An income-driven repayment plan can reduce your total monthly payment for student loans — by limiting it to a percentage of your income. And after you make payments under the plan for 20 to 25 years, any remaining loan balance will be forgiven. Off the books!

Public service loan forgiveness also can eliminate some of your student debt, if you make 10 years' worth of monthly payments while working for a government or nonprofit organization. Your remaining balance will be canceled, tax-free.

So you see, student loan consolidation isn't always the answer. It may be worth it only if you can't handle your current monthly payment, or if your income or employment doesn't qualify you for either income-driven repayment or public service loan forgiveness.

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