Individuals struggling to make private student loan payments may find the idea of loan consolidation appealing because of the opportunity to lower the interest rate and monthly payment of the current loan. Before seeking out an alternative education consolidation loan, those considering consolidation should know the benefits and risks of doing so.

Advantages of Private Student Loan Consolidation

1. The main benefit of consolidating private educational loans is the convenience of combining all payments into a single monthly payment and dealing with only one lender.
2. Payments for a consolidated private loan may be less than the current loan if an individual’s credit score has improved since the time of the original loan. Monthly payment amounts can also be reduced by extending the repayment terms under the consolidated private loan.
3. Since there are typically no prepayment penalties, the consolidated loan can be paid off early without repercussion.

Disadvantages of Private Student Loan Consolidation

1. The fact that interest rates are based on credit history can mean either a higher interest rate than the original loan or the need for a co-signor depending if one’s credit score has worsened since the original loan. Just like with private student loans, consolidated private loans have variable interest rates, so low rates cannot be locked in and both the interest rate and monthly payment are likely to go up.
2. Loan origination fees can be hefty when consolidating private educational loans with some lenders charging as much as 5 percent of the loan.
3. Private loan lenders are not required to offer hardship deferments or forbearances on private student loan consolidations; however, even if a lender voluntarily offers in-school deferments or forbearance, there is a processing fee that must be paid upfront. Also, interest payments may not be tax deductible on consolidated private loans.
4. Unlike federal consolidation loans, consolidated alternative education loans are not forgiven upon the borrower’s death, leaving an individual’s family responsible for the debt.
5. Consolidated private student loans do not qualify for forgiveness for certain types of federal work in the same way as consolidated federal loans.

Although private student loan consolidation at first glance may seem an attractive option, consolidating private educational loans can have serious consequences if a borrower experiences financial difficulties during the term of the loan. Before seeking a consolidation, speaking to current lenders in regards to lower monthly payments may prove beneficial. Borrowers who choose to consolidate private student loans should be sure to read the fine print of any loan contract before signing on the dotted line.

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