Education Loan Consolidation
If you have multiple student loans, you may want to strongly consider education loan consolidation. Consolidating student loans can have multiple benefits, such as lowering the cost of your monthly payments, and by simplifying the repayment process through only having to make one payment monthly.
Of course, like most things in life, there are a couple of downsides to consider with education loan consolidation. We’ll try to touch on some of the aspects of both Federal and Private Student Loan Consolidation here.
Federal Education Loan Consolidation
If you have Federal Student Loans (either Direct or FFEL), these loans can be consolidated directly through the government into one loan, with one payment. Depending upon things such as interest rates and repayment periods, you may actually even lower the total amount you’re repaying per month, while only having to make one payment.
Bear in mind that if you increase the number of years required to repay your loan, you’ll likely also increase the amount of total interest you’ll repay over the life of the loan. Naturally, this is one reason to consider paying an extra amount above your normal monthly payment when possible. Remember, just because your allowed loan repayment period is, for example, 10 years, you don’t have to use the whole 10 years to repay. Paying a little extra along as you go will make a big difference in the total amount you’ll end up repaying.
The interest rate you'll pay with education loan consolidation is calculated by using a “weighted average” of the interest rates of all the loans you're consolidating. In other words, they look at the interest rates of all your education loans, then calculate an “average” interest rate from all the different rates. If you have certain loans that are for a much larger amount of money, the interest rates of those education loans will have more influence on the interest rate you'll pay on the consolidation loan. The interest rate of a smaller loan will have less influence.
For example, if you have one education loan with a $5,000 balance which has an interest rate of 6%, and another loan with a $1,000 balance which has an interest rate of 8.5%, your consolidation loan interest rate will be 
somewhere between the 6% and 8.5% – but will be closer to 6%, because the 6% loan has a larger balance, and, thus, more influence on the new interest rate you'll receive. If some of your education loans are at a subsidized interest rate, you'll be able to retain those subsidy benefits, because they'll be considered when calculating this new “weighted average” interest rate for your consolidation loan.
With federal education loan consolidation, there are no fees for the loan, and there is no minimum amount required for the consolidation loan. Currently there are five different repayment options which help suit the loan to your specific needs. These five options vary in the amount paid each month. With the Standard Repayment Plan, you'll pay a fixed amount each month, for a time period of 10 to 30 years (not including periods of deferment or forbearance). Other plans offer various options such as beginning with smaller payments which gradually increase over time, or repayment plans based things such as your family's income. Only you can determine which repayment plan is best for your personal circumstances, so consider your options here carefully.
Private student education loans are not eligible for Federal Education Loan Consolidation, but, by mentioning them during the application process, they may be considered when calculating your minimum payment under the Graduated or Extended Payment plans.
One important thing to remember is that these consolidation loans cannot be re-consolidated without rolling at least one more student loan into the mix. So, if you'd like the opportunity to redo your consolidation loan at a later date, you may want to consider leaving one of your student loans out of the consolidation loan for this purpose.
Finally, if you're close to paying off your student loans, you may need to put some consideration into whether or not it's worth the effort to consolidate. If you're only a few payments away from payoff on your education loans, you may be better served to just “stay the course” and pay off the original loans without consolidating.
Private Education Loan Consolidation
Private student loan consolidation is similar to its federal counterpart in many ways, but there are a few differences. For example, federal student loans cannot be consolidated through a private student loan, much like private student loans cannot be consolidated into a federal consolidation loan. So if you have private student loans, you must consolidate them using a private lending institution, such as Chase or Citi.
Like federal loans, there are often no application, origination, or prepayment fees for a private student consolidation loan.
Unlike federal student loan consolidations, private consolidations will likely have a minimum loan amount specified as a requirement of the loan. In other words, the total amount of all education loans you want to consolidate must add up to a certain dollar amount before the bank will consider doing the education loan consolidation for you. This minimum amount is usually a few thousand dollars.
These private consolidation loans will require that the bank run a credit check on you, because, unlike federal loans, the government does not guarantee private consolidation loans. One thing to remember here is the positive effect that having a good co-signer can have on the interest rates you’ll receive.
Even if using a cosigner will only lower your interest rates by a fraction of a percent, the amount of interest charges this can save you over time can be astounding… don’t underestimate this important point. And often, once you’ve made on-time payments for a few years, this co-signer can be released from the loan at your request, while your interest rate stays the same.
Many banks also offer an extra discount on your interest rate if you opt for automated electronic monthly payments. Certain banks may offer other incentives, so be sure to shop around to get the deal that’s best for you.
Next: Student Loan Resources