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Consolidating School Loan - Definition And Basis


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By consolidating school loans, you can combine your multiple loans under one debt. You can get special benefits by availing this program such as structuring the repayment the way you like, low monthly payments, fixed interest rate, one payment every month to a single lender, flexible repayment procedures during hardships etc.

School loans are a great way to finance education but they eventually need to be paid off. If you manage your finances smartly, school loan will no more be a burden for you. A good and smart way to do so is to consolidate your school loans.

Once you enter into the job market, you will realize that it is not that easy to get a job that can pay for everything in the first place like your home expenses on one hand and your debts on the other. Keeping this in mind, you should start thinking of consolidating your school loans.

Repayment methods:

School loan consolidation provides you with an easy repayment schedule. You can pay off your school debts by choosing a payment plan which ranges from 10 years to 30 years, thus reducing your monthly installments. You can select any one of the repayment methods given below:

  1. Level payments: In this plan your consolidated loan is repaid in equal monthly payments over the maximum term.
  2. Graduated payments: According to this plan, you pay only the interest each month during your first one-third of the repayment term. For the remaining two-thirds of the repayment term, you pay level monthly payments.
  3. Graduated payments (income-sensitive): In the first quarter of the repayment term, you have to pay only the interest each month. In the second quarter, you pay level monthly payments on the balance, using the original maximum repayment term allowed. In the last half of the repayment term, level payments are re-calculated, enabling you to pay off the remaining loan.


By availing school loan consolidation, you are entitled to the following benefits:

  • Consolidating school loans helps you bind your multiple loans together into a single unit.

  • It makes your life easy by simplifying your finances, making you pay just once in every month.

  • It makes you pay at low or adjustable interest rates.

  • It decreases your monthly installment.

  • With federal loans, one can also opt for benefits like deferment, forbearance, forgiveness etc.

    However, with all these benefits it also has some disadvantages which are as follow:

    • Consolidating school loan for a longer period of time means that you end up paying more than the actual loan amount.
    • When opting for deferment, you can end up accumulating your interest till the time your deferment period gets over thus amounting to a huge sum.
    • Not all loans are eligible for forgiveness at the time of consolidation.

    You can avail federal as well as private loan consolidation. The federal loan consolidation is free of charge whereas private loans may cost you. Review the terms and conditions of both federal and private loan consolidation then make a selection. Find a quick review of both programs below:

    A Quick review of federal and private loan consolidation:

    Federal consolidation loans are a way to refinance federal education loans only. Private consolidation loans are a way to refinance private education loans. The main difference is that a federal consolidation loan comes with a fixed interest rate that follows a set federal formula, whereas private consolidation loans come with a market rate that may be fixed or variable.

    While consolidating both federal and private loans, make sure to keep them separate. Refinancing a federal loan with a private loan can result in a much higher interest charge if compared to keeping them separate and paying individually.

    Federal consolidation loans also provide you with options like:

    (a) Deferment - when your lender allows you to temporarily postpone your payments due to economic hardship

    (b) Forbearance - When your lender allows you to temporarily postpone paying the principal on your loan, though interest on the loan still accrues

    (c) Forgiveness - If the federal government cancels all or some part of the loan taken under federal loan consolidation then it would be termed as forgiveness. This is done under certain conditions like, if you do either of the following;

    • Perform volunteer work.
    • Perform military service.
    • Teach or practice medicine in certain types of communities.
    • Meet other criteria specified by the forgiveness program.

    Overall, school consolidation loan seems like an intelligent choice especially by those who have recently graduated and need to pay off their educational loan at low interest rate and flexible payment procedures.

    Sara Sentor


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