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Conslidating debt

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When it comes to consolidation, the types of loans you have matters, but most federal loans, including Stafford, Perkins, Direct Plus and Supplemental loans, can be consolidated with other federal student loans.“The interest rate on (federal) consolidation loans is an average of the interest rates on the (federal) loans you’re consolidating,” says Ken O’Connor, director of student advocacy for Fynanz, a New York City firm providing technology for the private student loan market.

That means if your score isn’t superhigh, you could wind up paying more if you consolidate.Instead of making multiple payments to multiple lenders, the borrower only has to pay off the new consolidation loan, says Michelle Pezzulli, vice president of operations for Credit Union Student Choice, a student lending service provider in Washington, D. “That new loan will have its own interest rate; it will have its own repayment terms; it will have its own terms and conditions,” she says.This can be attractive to borrowers because the consolidation frequently results in longer repayment periods and lower monthly payments.Some are better than others, so make sure to look at the varying terms of each one — staying away from charges or origination fees and checking the maximum interest rate so you won’t get burned down the road.Most also have limits on how much you can consolidate.Know that you might need a higher credit score if you want the best rates without a co-signer.

Federal consolidation loans come with borrower protections private lenders may not offer.

These include deferment — the ability to suspend payments under certain circumstances such as serving active military duty, attending further education or unemployment — and forebearance, which allows borrowers to postpone payments while still accruing interest, in cases of financial hardship.

Federal loan borrowers can also lower their monthly payments by extending the life of their loan, having their payments capped according to their income and by having their debt dismissed after making 25 years of consecutive payments under the income-based repayment plan.

Consolidating both types of loans excludes borrowers from federal protections.

When eyeing consolidation options for private loans only, Mayotte says borrowers should evaluate the new loan’s hardship protections and repayment terms in addition to the interest rate.

Here’s what you need to know before deciding to consolidate student loans.