Consolidating Student LoansAs the costs of higher education have skyrocketed over the last few decades, more and more students have gone deeper into debt to finance their educations.  In Canada, the amount of government assistance for college educations has declined, forcing students to borrow even more.

Typically, students borrow from multiple sources and consequently end up making monthly loan payments to several different lenders.  If you are having a hard time meeting your monthly bills you can reduce your total outlay by consolidating all your student loan consolidation into a single loan with a single payment.  And that single payment will generally be much lower than the combined payments you’ve been making to multiple lenders.

There are advantages and disadvantages to consolidating student loans, so let’s look at both the upside and the downside.

Consolidating Student Loans:  the Upside

The most obvious advantage is more of your income left at the end of each month.  Most consolidation loans extend the term or life of the loan which further reduces that new single payment.  In many cases, you can also get a lower interest rate and if you have any federal loans the interest rate on them will remain the same.

Another key advantage is knowing for sure what your monthly payment will be.  Some loans are initially taken out with variable rates so their monthly payments can go up or down.  By consolidating everything into a single fixed rate loan, you’re in a better position to manage your money over time since you can budget for an amount you know will remain the same.

For those of you who may be getting creditor calls because you’ve fallen behind on some of your loan payments, there is another major advantage to consolidating your student loan consolidation.  The calls will stop!  If you have been losing sleep at night worrying about these calls, the peace of mind you’ll get from consolidation may be the only reason you need to do it.  However, there are some disadvantages about which you should be aware.

Consolidating Student Loans:  the Downside

Extending the term of the loan, which has the upside of lowering the monthly payment, also has a significant downside.  Even with a lower interest rate, you will probably pay more in total interest costs over the life of the loan.  And if you ended up consolidating at a higher rate, due to poor credit or higher prevailing rates, you’ll end up paying even more

If you’re consolidating because you’ve already fallen significantly behind in your payments, you can expect to pay a higher rate.  But if you’re in that position, you may have no choice.  The allure of money left over at the end of the month can’t be ignored.  And therein lays another huge disadvantage.  In effect, what you have done is create the illusion that you have more money, when in fact you really don’t.  You still owe the same amount spread over a longer time.

If it becomes necessary for you to declare bankruptcy at a later date, the federal student loan consolidation you’ve had for more than seven years are “forgiven.”  They are discharged in bankruptcy and you are no longer obligated to repay.  But if you consolidate with a private lender, you lose that advantage.

In summary, consolidating your student loans might be right for your situation.  Just be sure you consider the advantages and disadvantages before you start looking for lenders.

About - David was initially drawn to accountancy because he was ‘good with numbers’. He has been an insolvency professional since 1993. Soon after he began to work with debt issues he discovered that the most satisfying part of his role was the ability to make a positive difference in other people’s lives. It is the person, not the numbers that continues to guide his approach toward helping others deal with debt issues.