Before a Student Loan Consolidation, Consider These Five Drawbacks

When considering student loan consolidation, there are a number of variables to consider. The process has both its advantages and disadvantages, all which should be reviewed before jumping into consolidation. The following list contains five potential drawbacks of student loans that students should be familiar with to get some help with debt.

Fixed Interest Rate

When consolidating student loans, you're automatically given a fixed interest rate. This could be seen as either an advantage of disadvantage. It's an advantage in the sense that your rate never goes up, yet puts you at a disadvantage when variable rates drop. Fortunately, such drops won't have a huge financial impact on those paying back their loans, but should still be considered.

Discharge and Deferment Benefits

Certain loan programs provide discharge benefits which provide you with money after graduation. This money is used to pay off the loan. Deferment allows you to delay payments on a loan until the loan ends, and sometimes these benefits won't remain after consolidation. Therefore you may want to reconsider consolidation so that you can retain these benefits. A viable option would be to leave these loans out of the consolidation process.

Loss of the Grace Period

After graduating, you normally have a six-month grace period in which you don't have to make loan payments. The idea of this period is to give you an opportunity to find work and relocate if necessary. Consolidating your loans too early causes you to potentially lose this period. That's not to say, however, that you should completely avoid consolidating during that time. If you consolidate during the grace period you have the potential to get a 0.5% interest discount on your new loan. This is a great way to save some money.

Payment Schedule

Be sure to make a payment schedule that isn't too long but still remains realistic. Stretching out payments causes your loan take longer to pay off, which in turn means paying even more interest. This is probably one of the most common ways that those in the student loan debt consolidation business capitalize on those who don't know any better. Be smart about your schedule and pay it off as quickly if you realistically can.

Eliminating Loans

Without consolidation you pay off your loans one by one, meaning that when a loan's gone it's gone forever. When you see your loans consolidate, however, they're all lumped together. Therefore you'll continue paying until it's all gone. This is a serious point to consider for those paying off their debt.

In the end, it's your choice entirely. Weigh the advantages against the drawbacks and determine if loan consolidation is the right path for you.