Is this loan right for you?

The option of a federal student consolidation loan is only available to those who have already graduated from a college or university. If you've heard of this loan before, chances are it was compared to the same type of loan given when refinancing your home. However, there are differences. When refinancing your home, you only have one home payment to renegotiate, but when consolidating your school loan, it's as if you own several small properties whose mortgages must be combined into one payment.

The way a Federal Student Consolidation Loan works

The consolidation process isn't a quick one. You first need to complete the application. You can either do so online or at the financial institution of your choice. The application is then checked to ensure the information you provided is accurate and if you are eligible for the loan. Once it is checked, the application is sent to an underwriter who must contact your existing lenders for your payoff statements, which are also referred to as LVCs, or loan verification certificates. Upon receiving the LVCs, the underwriter then must purchase the loans from those lenders and issue a new loan. After the loan is issued, you will be given your paperwork and you can begin making payments. This process usually takes one to two months to complete.

Reasons you should consolidate

It has been said that the perfect time to consolidate is right after you graduate, because you can do so before the end of your grace period. You can also ensure that you lock in whatever the lowest possible interest rate is at that time. By consolidating, you will have a higher cash flow each month, your payment term can be extended, and you reduce the amount you pay each month.

Reasons you shouldn’t consolidate

A Federal Student Consolidation Loan isn't for everyone. Those who don't care what their payments are, but are instead worried about interest, aren't good candidates. It also isn't a good idea if you have paid off at least 75% of your loan. With such a small amount of the loan left, consolidating will only make your payment period longer. So, it is better to keep your existing loan payments so you can be sure your loans are paid off as soon as possible.

Is it worth it?

If you make large monthly payments on several loans, a Federal Student Consolidation Loan is definitely worth looking into. You may have a longer payment period, but your payments will be greatly reduced.