What Student Loan Consolidation Really Means

If you have taken out loans to go to school, you most likely have Federal Stafford loans from at least one bank.  If you ended up with more than one bank, you have to make two sets of payments every month for those loans.

I have two sets of loans, and in about 7 months they will come due.  When that happens, I will probably find a consolidation loan.  There are a few important things to know about consolidation loans if you are planning to consolidate.

First, do not get the impression that a consolidation loan will save you money.  Federal Stafford loans, the most popular type of student loans, are fixed at 6.8% by the government.  If you have two loans with minimum payments of $100 each and you consolidate, you will just have one payment of $200.

If you do not get the same kind of loan when you consolidate, the process can actually cost you more money.  Make sure that if you have student loans to consolidate you continue with a Federally backed loan with the same fixed interest rate.

Consolidation can also impact your credit score.  The impact should not be big depending on when you got the first loan.  When you consolidate, you close two loans with history and replace them with one brand new loan.  This lowers your average account age and can impact your credit.