Student Loan Consolidation - 3 Things to Watch Out For

Consolidating your student loans can be a smart way to lowering your overall payment, helping you to pay off the debt sooner than you would without a consolidation loan. There are several companies out there that line up at a graduates door with offers to consolidate that seem too amazing to be true. There is a good chance that some of them are, so it pays to do your homework and keep your eyes open when you are shopping for a loan to consolidate your school debts. Remember, you can only consolidate them one time, so it is imperative that you do things right the first time.



Watch out for companies that want to charge you an application fee. 

According to the Federal Consolidation Loan Program, lenders are not allowed to charge a fee to consolidate your loans. They also aren't permitted to take your credit history into account when preparing the terms of the loan. Student loan consolidations are the one loan that isn't based on your credit report, so be wary of any company that needs to see your credit score.

Watch out for companies that refuse to consolidate with an income sensitive repayment plan. 

Your lender should be willing to work out payments that take into account the income you will be generating. If all of your loans were taken out with the same company, you are required to give them the first opportunity to give you a consolidation loan. If you ask them for an income sensitive repayment plan and they refuse to comply, you don't have to consolidate with them and you are free to find another lender.

Watch out for companies that encourage you to consolidate your loans with your spouse’s loans.

Student loans are one aspect of a couple’s finances that should always be kept separate. If you consolidate your loans with your spouse’s loans, you are liable for those loans even if you divorce or one of you becomes disabled or dies. Imagine having to pay for an ex-spouse’s student loan long after he or she has remarried, because defaulting would hurt your own credit.


Our Recommended Student Loan Consolidation Lenders: (updated )