The Pros and Cons of Consolidating Your Student Loans

Consolidating student loans is a financial strategy that involves combining multiple debts into a single loan, typically with a fixed interest rate and a longer repayment period. This process can simplify loan management by reducing the number of monthly payments and potentially lowering the overall interest rate. However, there are both pros and cons to consider when deciding whether or not to consolidate your student loans. 

The Pros and Cons of Consolidating Your Student Loans

In this article, we will explore the advantages and disadvantages of consolidating your student loans, allowing you to make an informed decision based on your financial circumstances and goals.

What is Student Loan Consolidation?

Student loan consolidation is a process that involves combining multiple student loans into a single loan, usually with a new lender. This consolidation simplifies loan management for borrowers by reducing the number of loans and lenders they have to deal with. The primary purpose of consolidating student loans is to streamline repayment and potentially secure better loan terms.

When you consolidate your student loans, you essentially take out a new loan that is used to pay off your existing loans. This new loan replaces your previous loans, and you are left with only one loan to repay. The consolidation loan may come with a fixed interest rate, which can be advantageous for borrowers who have loans with variable interest rates.

The benefits of student loan consolidation include simplifying loan management by having a single monthly payment and potentially lowering the overall interest rate. Consolidation can also provide more flexible repayment options, such as income-driven repayment plans, which adjust monthly payments based on income and family size.

How debt consolidation works

Debt consolidation is a process in which a borrower takes out a new loan or credit card to pay off their existing individual debts. The goal is to streamline and simplify debt repayment by combining multiple debts into a single, more manageable payment.

When opting for debt consolidation, the borrower first assesses their outstanding debts, including credit card balances, auto loans, personal loans, and other debts they may have. They gather information about the balances, interest rates, and monthly payment amounts for each debt. After assessing their debts, the borrower explores debt consolidation options available to them. Common options include personal loans, balance transfer credit cards, or debt consolidation plans.

By consolidating debts, borrowers can potentially benefit from lower interest rates, lower monthly payments, and a simplified repayment process. However, it's crucial to carefully consider the terms and conditions of the consolidation option, including fees and potential impact on credit scores. Seeking advice from a financial advisor or credit counsellor can help individuals make informed decisions based on their specific financial situation.

Types of loans eligible for consolidation

When it comes to debt consolidation, the specific types of loans eligible for consolidation can vary depending on the program or institution involved. However, here are some common types of loans that are generally eligible for consolidation:

  1. Credit card balances: Credit card debts are often eligible for consolidation. Borrowers can consolidate multiple credit card balances into a single loan or credit card with a lower interest rate.
  2. Personal loans: Personal loans, such as those taken for various purposes like home renovations, medical expenses, or education, can typically be consolidated. These loans can be secured or unsecured.
  3. Auto loans: Auto loans can sometimes be included in a debt consolidation plan, particularly if the borrower wants to simplify their repayment process and potentially secure a lower interest rate.
  4. Medical loans: Medical expenses that have been financed through loans can be consolidated along with other debts. This allows borrowers to manage their medical debts more efficiently.
  5. Business-related credit facilities: Certain debt consolidation programs may allow borrowers to consolidate business-related credit facilities, such as business credit cards or lines of credit. However, eligibility and terms may vary depending on the program.

It's important to note that the specific eligibility criteria and loan types eligible for consolidation can vary between financial institutions, debt consolidation plans, and programs. Therefore, it is advisable to check with the specific institution or program you are considering to determine the types of loans they accept for consolidation.

Pros of Student Loan Consolidation

  1. Simplified Repayment: Consolidating your student loans allows you to streamline your repayment process by combining multiple loans into a single loan. This means you'll have only one monthly payment to manage, making it easier to keep track of your loan obligations.
  2. Lower Monthly Payments: Consolidation can potentially lower your monthly payments by extending the repayment term. This can be particularly helpful if you're struggling to meet your current payment obligations. However, it's important to note that extending the repayment term may result in paying more interest over the life of the loan.
  3. Fixed Interest Rate: When you consolidate federal student loans, the interest rate on the consolidated loan is fixed, based on the weighted average interest rates of the loans being consolidated. This can provide stability and protect you from potential future interest rate increases.
  4. Access to Loan Forgiveness Programs: By consolidating your federal student loans, you may gain access to certain loan forgiveness or repayment programs that were not available to you before consolidation. For example, if you consolidate your loans into a Direct Consolidation Loan, you become eligible for income-driven repayment plans and Public Service Loan Forgiveness.

Cons of Student Loan Consolidation:

  1. Loss of Benefits: Consolidating your federal student loans may cause you to lose certain borrower benefits associated with the original loans. For example, if you have loans with specific forgiveness provisions or interest rate discounts, those benefits may no longer apply once you consolidate.
  2. Resetting of Repayment Clock: When you consolidate your student loans, a new loan is created, and the repayment clock starts anew. This means that the progress you made towards loan forgiveness or repayment term completion on the original loans will be lost.
  3. Potential Interest Increase: While consolidation can provide a fixed interest rate, it is based on the weighted average of the loans being consolidated. If you have loans with significantly lower interest rates, consolidating them may result in a slightly higher overall interest rate.
  4. Ineligibility for Certain Repayment Plans: If you have loans with income-driven repayment plans, consolidating them may make you ineligible for certain repayment plans, such as Pay As You Earn (PAYE) or Revised Pay As You Earn (REPAYE).

It's important to carefully consider the pros and cons of student loan consolidation and assess how they align with your specific financial situation and goals. It's advisable to research and consult with student loan experts or financial advisors to make an informed decision.

Factors to Consider in Student Loan Consolidation

When considering student loan consolidation, there are several factors to take into account:

  1. Current Loan Terms and Interest Rates: Before deciding to consolidate your student loans, it's crucial to review your existing loan terms and interest rates. Consolidation doesn't lower the interest rates on your loans, but it can simplify repayment by combining multiple loans into one new loan with a single monthly payment. Therefore, it's important to assess whether consolidation will provide any tangible benefits in terms of repayment terms and overall convenience.
  2. Financial Goals and Repayment Ability: Evaluate your financial goals and consider how student loan consolidation fits into your overall financial plan. If you're looking to reduce your monthly payment amount, extending the repayment term through consolidation may be an option to consider. However, it's essential to consider the long-term implications of extending the loan term, as it may result in paying more interest over time. Assess your ability to make monthly payments and choose a repayment plan that aligns with your budget.
  3. Eligibility for Loan Forgiveness Programs: If you're pursuing loan forgiveness programs, such as Public Service Loan Forgiveness (PSLF) or income-driven repayment plans, consolidating your federal student loans may affect your eligibility. It's crucial to understand how consolidation impacts your eligibility for these programs and whether the potential benefits of consolidation outweigh the potential loss of forgiveness options.
  4. Potential Impact on Credit Score and Credit History: Consolidating your student loans can impact your credit score and credit history. When you consolidate, your old loans are paid off and a new loan is created. This may result in a temporary dip in your credit score due to the closing of multiple loan accounts. However, as you make on-time payments on the consolidated loan, your credit score can recover and potentially improve over time.
  5. Loan Servicer and Consolidation Options: Consider the loan servicer and consolidation options available to you. You can consolidate federal student loans through the U.S. Department of Education's Direct Consolidation Loan program. Private student loans can be consolidated through private lenders. Research and compare different consolidation options, including interest rates, repayment terms, fees, and borrower benefits, to choose the option that best aligns with your needs and financial goals.

It's important to thoroughly evaluate these factors and consider seeking advice from a financial professional or student loan expert before making a decision. Each individual's circumstances and priorities may vary, so it's crucial to make an informed choice based on your specific situation and goals.

Alternatives to Debt Consolidation

When considering alternatives to debt consolidation, there are several options you can explore:

Borrow Against Life Insurance

If you have a life insurance policy with cash value, you may be able to borrow against it to repay your debts. This option allows you to access the funds without taking on additional debt.

Budgeting and Financial Planning

Creating a budget and sticking to it can help you regain control of your finances. There are various budgeting apps available that can assist you in tracking expenses and managing your money effectively.

Nonprofit Credit Counseling

Seeking help from a nonprofit credit counselling agency can provide valuable guidance in dealing with your debts. A certified credit counsellor can review your debts, help you create a budget, and provide recommendations on how to prioritize and manage your debts.

Debt Settlement

If you are unable to arrange a consolidation plan, you may consider debt settlement. Debt settlement involves negotiating with creditors to accept a lump-sum payment for less than what you owe. However, it's important to note that debt settlement can have negative consequences on your credit score.

Consumer Credit Counseling

Consumer credit counselling offers a debt management plan that allows you to make a single monthly payment at a reduced interest rate. A credit score is not a factor in qualifying for this program, and credit counsellors work with your creditors to develop a repayment plan.


Filing for bankruptcy should be considered as a last resort. It can provide a fresh start and help you regain control of your finances. However, bankruptcy has significant long-term consequences and should be thoroughly evaluated with the assistance of a legal professional.

Remember, the most suitable alternative to debt consolidation will depend on your circumstances, the type of debt you have, and your financial goals. It's recommended to consult with a financial advisor or credit counsellor to determine the best course of action for your specific situation.


In summary, student loan consolidation can be a beneficial option for individuals looking to simplify their repayment process and potentially lower their monthly payments. By combining multiple federal student loans into one, borrowers can streamline their financial obligations and manage their debt more effectively.

However, it is essential to carefully evaluate personal circumstances and goals before opting for consolidation. Factors such as current loan terms, interest rates, financial goals, and repayment ability should be taken into consideration to ensure that consolidation aligns with individual needs.