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Should I Wait to Consolidate My Student Loans

If you are a recent college graduate, you are probably dreading the end of your grace period and wondering when you should consolidate to maximize your savings. Even if you are already in your repayment period, you might still be unsure if it would behoove you to wait to consolidate. In short, the answer to this question is that it largely depends on the types of loans you have. Some of your loans might be variable-rate loans, which means your rate is adjusted each July. If you have these kinds of loans, your rate may go down come July. Because your consolidation loan’s rate is based on a weighted average of your existing loans’ rates, lower interest rates on your variable loans would mean a lower consolidation rate. In this post, we’ll discuss when waiting to consolidate is a good idea.

Is Consolidation Right?

You may decide to consolidate your loans for a number of reasons, and many factors will influence whether consolidation is the best choice for you. For the most part, it will depend on what you want to accomplish with consolidation. If you:

    When Not to Consolidate

  • Want to lower your monthly payment - If you’re trying to ease your monthly payment burden via consolidation, waiting to do so probably is not in your best interest. You could probably benefit substantially from an immediate boost in your monthly cash flow. If you waited until July to consolidate, your high monthly payments may prove too much of a strain on your budget.
  • Lock in a fixed rate - If your goal in consolidating is to lock in a low, fixed rate, it might benefit you to wait until July to consolidate. This is only a factor for those who have variable-rate loans. Remember that rates change every July, but there are no guarantees that the rates will drop.

When Not to Consolidate

For some student loan holders, consolidation might not make sense at all. For instance, if you have a substantial amount of debt at a relatively low interest rate and a small amount of debt at a high interest rate, it doesn’t make sense to combine these debts. You would end up paying a higher interest rate overall because the two rates would be averaged together. One alternative to consolidation that you might consider is an extended repayment plan, which is available to loan holders with over $30,000 in education debt. The Federal Family Education Loan Program sponsors a program that will decrease your monthly payment without having to take out a consolidation loan.

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