Student Loan Repayment: The Dangers of Student Loan Debt Consolidation


If you’re reading this article intently, chances are, you’re among the 50% of college students with outstanding student loans and must be frantically looking for a way to deal with your debt. High college costs of tuition, books, and housing have forced many students to borrow loans to fulfill their educational necessities. Many of them attempt to simplify the repayment procedure and prefer to combine both federal and private loans into a single consolidated loan, rather than securing separate federal and private consolidated loans.

However, there are potential issues involved with consolidating private and federal loans together. Federal student loans offer some added advantages to the consumers and those benefits can be lost if you consolidate federal and private loans together.

What are the differences between federal and private student loans?

Federal student loans work in the best interest of students and offers advantages that are not at all available with private loans. For example federal student loans are tax deductible, these loans can be deferred if the borrower returns to school once again and most importantly U.S. Government may partially or completely forgives your student loans if you are employed with federal volunteer programs or working in military service or teaching in economic development zones.

On the contrary, private loans offer no advantage for consumers. They are just like any other private loans which are generally borrowed from private lending institutions and will be repaid like any other secured or unsecured loans.

What are the cons of consolidating federal and private loans?

Unfortunately, all the above mentioned disparities between federal and private student loans cannot coexist if you intend to pay both your private and federal loans through one payment gateway.

If you replace both your federal and private loans with a single consolidated private loan you will invariably lose all the benefits of federal loans.

Here are a few consequences of losing those benefits:

  • As private loans come with variable interest rates along with volatile indexes and rise over time into double digit percentages, it can pile up the debt burden even more.
  • The consumer is not able to claim paid interest as a tax deduction.
  • No matter what your current financial condition is payments cannot be delayed in anyway.
  • You won’t be able to apply for loan forgiveness in any way.
  • Payments will no way be forgiven if the borrower returns to school.
  • After death, outstanding student loan debt will be passed on to the borrower’s next of kin whereas in federal loans student loans are forgiven after death.  

Keep your federal student loan consolidation separate from private loan consolidation.

If you keep the federal student loan consolidation and private loan consolidation separate, you might be able to enjoy the government benefits in a better way. When you have incurred both federal and private student loans, you should always consolidate your federal loans first. By doing so, you can lower the number of open items on their credit reports and can boost your credit ratings. This can also help you to win better terms on a private loan consolidation in future.

To conclude, if you are planning to consolidate your federal and private loans and don’t want to lose the benefits associated with federal loans, then combine your federal student loans first to ensure your financial freedom sooner than later.

Kevin Craig is a financial writer associated with various finance related communities. He has been providing advice on debt settlement and debt consolidation programs since 2007. With his advice, many people are now living a debt free life.


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