What Is Student Loan Consolidation?

Student loan consolidation involves taking out a single new loan that pays off your existing private and federal student loans. This consolidation process allows you to make one payment rather than multiple payments to multiple lenders each month.

The amount of loans you have depends on how much time you’ve spent in school and your tuition cost after any gift aid such as scholarships and grants. Your out-of-pocket expenses can change each year, so your loans likely will be for varying amounts each year or term you spend in school. 

But is consolidating student loans a good idea?

Is Consolidating Student Loans a Good Idea?

One of the most common and attractive reasons to consolidate your student loans is that doing so can simplify your life. Here are just a few of the benefits that could help you answer: “Is consolidating student loans a good idea for my personal situation?”

Streamline Your Bill-Paying Process

Even in a day of online and automatic bill payment, financial management can still be time-consuming. A traditional bachelor’s degree takes four years, which means you’re likely to have at least four student loans when you graduate. Taking an extra semester, attending graduate school or even taking out loans from multiple lenders such as a federal student loan and a supplemental credit union student loan during the same academic year could result in many loans. Consolidating them, in essence, puts them on the same account, resulting in fewer account log-ins, fewer due dates, fewer individual payments and less email and paper mail.

Extend Your Repayment Period

One advantage of student loans is that many are designed with extended repayment times such as up to 10 years, which is often more than standard auto or personal loans. Consolidating your student loans into one monthly payment, however, means lengthening the time you have to pay off your loans entirely, sometimes up to 20 or 30 years. This is especially helpful if you have some older student loans. Maybe they had three to four years left on them, but with consolidation, the repayment time, in a way, starts over.

Lower Your Monthly Payment

Student loan consolidation, because it also extends repayment terms, reduces the amount you’d owe monthly to various lenders. This is good news if you’re looking to lower your monthly budget. Your previous loans might have been all over the place with amounts due and interest rates for each, so the loan consolidation also simplifies that to one payment at one interest rate. (Some financial institutions will even offer a lower interest rate for signing up for automatic payments.) 

Release Your Co-signer from Responsibility

Depending on your age and situation when you took out your student loans, you might have had a parent, spouse, family member or someone else co-sign your loan. When you are approved for your consolidation loan, your previous loans will be paid off in full, which will, in turn, release anyone else whose name was tied to those accounts. Additionally, if you require a co-signer for your new consolidation loan, institutions such as Lanco Federal Credit Union will release your co-signer after you make on-time payments for a year.

How Does Student Loan Consolidation Affect Credit?

Student loan debt is one of the most-talked-about issues when we, as a society, discuss our economic future. One of the most important factors of someone’s personal financial situation is their credit score. So how we handle our student loans can directly impact our buying power, at least when it comes to things we might need to finance such as a car, house or home repairs. But how does student loan consolidation affect credit scores? 

As you might know, student loans are listed on your credit report as an “installment account.” These types of accounts, along with “revolving accounts” like credit cards, are good for your credit mix. Paying revolving and installment accounts on time is one of the best ways to maintain a good credit score.

Although getting a consolidation loan doesn’t raise your score on its own—your outstanding debt amount will remain mostly the same—it can make it easier for you to manage your finances overall, thus helping you keep paying bills on time.

It’s important to point out here that, like any credit check from a potential lender, applying for a consolidation loan will add a “hard inquiry” to your credit report. Inquiries have a lower impact on your overall credit history than, say, amount of debt and on-time payments, but having too many inquiries in a short period can cause your score to drop.

Along with the section above, student loan consolidation can also positively impact the credit score of your co-signer(s), as accounts are marked “paid in full” and overall balances decrease.

Should I Consolidate My Student Loans?

As noted above, consolidation allows for a lower monthly payment. It also means you might pay a bit more in total interest over the years. Only you can determine what’s right for you, but many people agree that the benefits of lower, more manageable monthly payments now outweigh the disadvantages of a higher total amount due. 

Everyone’s financial situation is different, so if you’re wondering, “should I consolidate my student loans?” be sure to research your options. Look at the big picture, such as considering your other short- and long-term financial goals.

How to Consolidate Student Loans

Aside from knowing what you owe, how to consolidate your student loans begins with determining your eligibility. At Lanco Federal Credit Union, borrowers would need to meet our standard loan criteria as well as these requirements: 

• You (and your co-signer, if applicable) are U.S. citizens or permanent residents
• You’ve graduated from an eligible school
• You’re refinancing private and/or federal student loans
• You’re a member of Lanco FCU (or become a member during the application process)

Additionally, if you’re adding federal student loans to your consolidation package, you should not be in default on any of those loans.

You’ll, of course, need to have all your current student loan information available—type of loan, lenders, balances, interest rate, repayment terms, etc. You might also want to calculate what your loan payments or total amount due could be after consolidation compared with what it is now. (There are many free online tools to do so.)

From there, you’d complete the application process required by your lending institution.

Credit Union Student Loan Consolidation Rates

Credit union student loan consolidation interest rates can vary. There are two types of interest rates you will see for private student loans:

• Fixed: This rate will remain the same throughout your loan period.
• Variable: This rate will fluctuate (monthly or quarterly) based on market conditions.

The advantage of the fixed rate is its stability. However, many people find variable rates appealing because they often start lower, resulting in less interest paid overall. 

Check current Lanco Federal Credit Union student loan consolidation rates.