In this article, we tackle the question of whether to consolidate student loans or not. We specifically detail one piece of advice that we often hear. If you want to learn more about what debt consolidation is, we recommend clicking here before continuing. Before we get started, it is important to point out that everyone’s situation is different. If you have questions, please send us an email or speak with a financial advisor. If you find this article helpful, please subscribe to our newsletter and like this article.
Why Individuals Consolidate Student Loans
The primary reason individuals consolidate student loans is to make life easier. Many students graduate with multiple loans. The most we’ve seen in our trial program is 14 loans. When you consolidate student loans you can go from 14 down to one making life easier. As I explained in our previous debt consolidation article, monthly payments can decrease because the overall repayment schedule is lengthened (i.e., from a 10 year term to a 20 year term). The lower monthly payment relief may be needed. However, cumulative payments throughout the life of the loan increase relative to the non-consolidated loans.
The Often Cited Reason Not to Consolidate Student Loans and Whether It Is Good Advice
If you lengthen the term of your loan and make each scheduled payment (you make no prepayments), then the cumulative amount that is paid over the life of the loan increases. This is why many say not to consolidate student loans. On the surface this is correct. Why would you pay more over time if you do not need to? In addition, the lender wants you to extend the term. If you extend the term, they make more over time. In essence, it’s you against your lender.
However, by consolidating your loans you can potentially use debt to leverage your assets. As I mentioned above, Part 2 explores this point in more detail. To forewarn you, the following dives deeper into financial strategies and may not be appropriate for your situation. Is is not for everyone. If you have questions, please let us know.