My experiences with consolidating student loans were terrible, but I have learned a lot in the process.
My problems began about two years into repayment. I had several smaller loans and three large loans.
The smaller loans had a minimum payment, so my total student loan payment was quite high. Consolidating my student loan debt seemed like an ideal solution – I would have one smaller overall payment.
That much was true – the overall minimum payment was smaller. I came to realize, though, that for me consolidating my student loans created more problems than it solved.
Here are some of the lessons I learned.
Watch the Interest Rate
My understanding was that the interest rate of my student loans would be a weighted average.
What I did not realize was that it would also be raised to the next whole number.
The result was a much higher interest rate after consolidating my student loans.
Over the life of the loan, that adds up to a substantial amount of increased interest.
Understand the Loan Period
Many of my smaller loans would have been paid off in about two years, the larger loans in ten years.
With consolidating my student loan debt, the repayment period changed to 25 years.
The increased repayment period was the reason my student loan payment decreased with consolidation.
At the time of consolidation, that didn’t seem like an issue. Ten years later, it is.
Don’t Use Forbearance
This is where my consolidating student loan debt experiences really took a turn for the worse.
Every time you use forbearance if you do not keep up with the interest payments that amount is added to the loan. Over time, it significantly increases the amount of your loan and your monthly payment.
In my case, I had some long periods of unemployment and medical problems, and by taking forbearances I increased the number of my loans from $20,000 to over $60,000.
If I had not consolidated my student loan debt, I could have paid off the smaller loans, and only put the larger loans into forbearance.
In my experience, my consolidating student loan debt was a mistake.
It would have been better for me to keep my loans separate, and pay them off one at a time.
Eventually, the increasing student loan debt forced me to consolidate again, this time with the Federal government. (https://studentaid.gov/) But now I have a payment I can afford…for the next 25 years.