When a consumer has more than one student loan, sometimes it’s in his or her best interest to consolidate these loans into a single loan that can be serviced with a single payment. This is called a consolidation loan. But is it right for you? Here are the pros and cons of a consolidation loan.

Consolidation loans have the following disadvantages:

  1. Borrowers with relatively new loans will not save much on interest through consolidation. This is because interest rates on federal loans made after July 1, 2006 are fixed. Interest rates for consolidation loans are calculated based on the average interest rates of the loans being consolidated. Borrowers with variable-rate loans from before July 1, 2006 may be able to get very significant interest rate reductions by consolidating.
  2. While a consolidation loan may offer lower monthly payment, extends the repayment period. Hence, these loans can cost more over the life of the loan. If borrowers are close to repaying off their current loans consolidation may not be worthwhile.
  3. Borrowers may lose some rights by consolidating. This is most clearly a problem if the borrower consolidates federal loans into private consolidation loan (they would lose the rights associated with federal loans). Borrowers may also lose some options and protections if they consolidate certain federal loans particularly Perkins loans and to other federal programs.

The following are the main advantages of loan consolidation:

  1. Consolidation allows borrowers to pull over loans together make just one monthly payment.
  2. Consolidation might help if borrowers need to reduce payments to an extension of the repayment.
  3. Bowers may get an interest rate break, especially to have variable rate loans.

If you’ve been harassed or abused by student loan debt collector, call or e-mail Attorney Gary Nitzkin at Michigan consumer credit lawyers toll-free at (888) 293-2882.

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