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Loan consolidation is a debt management tool to allow you to pay off multiple student loans with one new consolidation loan. Loan consolidation allows you to extend your repayment period from 10 years up to 30 years depending on the amount of money you have borrowed. It is also an option to consolidate your and your spouse’s loans together.

Advantages of Consolidation
Loan consolidation has many advantages. Specifically, loan consolidation offers a fixed interest rate calculated as a weighted average of your individual loan interest rates rounded up to the next higher 1/8 of a percent. Stafford Loan interest rates are variable and change every July 1. Interest rates are at a historic low right now and consolidation will fix the interest rate. If you consolidate during your grace period you will also be eligible for an interest rate reduction of .60%. Multiple payments will also be condensed into one payment to one servicer. In addition, your monthly payments will be smaller because the repayment term is extended.

Disadvantages of Consolidation
One of the major disadvantages to consolidation is a longer repayment term which will increase the amount of interest you pay over the life of the loan. You may also lose some deferments and Stafford Loan benefits. Some deferments that are available with a Stafford Loan do not carry over to a consolidation loan. Also, be sure to check your eligibility for loan forgiveness programs, as you may lose these options when consolidating. When considering consolidation, it is best to discuss all of these points with the loan servicer or lender with which you are consolidating.

Last Reviewed: November 29, 2004