Federal student loans cannot be refinanced in the same way as other consumer debts can. It is best, if you can, to pay your federally acquired student loans in full. If not, it could lead to serious consequences such as wage garnishment or your tax refund being taken away from you. Presidential candidate, Hilary Clinton and democratic Senator Elizabeth Warren have proposed the refinancing of federal student loan debt for borrowers. This was proposed so that borrowers can enjoy reduced interest rates.


 The Panel

During a panel discussion by the Center for Financial Literacy, the panelists discussed the advantages and disadvantages of student loan debt consolidation, observing several key factors, one of which was the context of these loans and how it would impact the borrower’s financial status. Those borrowers who have numerous federal student loans should be able to consolidate into one primary loan for a lower interest rate. It would be more beneficial to consolidate than to experience the stress of holding large balances on student loans for years to come.


 Multiple Lenders

By the time, students graduate from college, their student loan amount is higher than they can manage. Some won’t find jobs right away and even though, deferment and forbearance is an option, these are only temporary solutions. In many cases where the student has multiple loans, it can get overwhelming and stressful. The student could be writing five checks each month to five different lenders instead of one.


 Various Repayment Options

When the student consolidates their federal student loan, it frees up various options of repayment. In the Federal Family Education Loan Program offered by the federal government and terminated in 2010, many students are not qualified for many of the repayment plans driven by income. If they were to consolidate to direct loans, then they would be able to utilize the federal payment plans, which permit students to pay according to their income. In addition, those same students will have the ability to get a repayment period extension on their loans. This makes the loans more manageable for repayment each month.


 Prior to Consolidation

Before you think about consolidating your student loan, you should consider that the repayment period extension will only make the loan period longer and the sooner you can pay this off, the better for your financial life. Even though, consolidation may allow you the convenience of paying one amount at a lower interest rate, you have to be careful not to get lackadaisical about maintaining a financial goal to pay off the loan as soon as possible. This means that you could pay more than the amount required each month – even with a consolidated loan.


 The Process

If you want to consolidate your student loan, the best thing is to contact the loan servicer, which is usually through a private company. You are only allowed to do the consolidation process through the company’s website and only for your specific student loans.

Before you consolidate, be sure to get as much information as possible. You should ensure that the interest rate on your student loans is not variable, but fixed for a number of years. Be careful to consolidate with a reputable company.  Be aware that when you switch from the federally covered student loan to a private consolidated company, you will no longer have the same government protections.