Student loans have become a major and often overwhelming burden for many people in Wisconsin and throughout the entire country. Many graduates face the question of consolidation and determining if it is the right decision. Understanding whether consolidation is right for you involves a discussion about your particular situation, so do not rely on this post as legal advice.

Although your individual answer depends on your circumstances, understanding the risks associated with consolidation is very important. And, yes, there are some risks.

Federal Student Aid, an Office of the U.S. Department of Education, enumerates a few of those consolidation risks for graduates with federal student loans, including:

  • Loss of protections: Federal loans have some generous protections. For instance, if you lose your job and cannot find new full-time employment, you can obtain a deferment for up to three years in most cases. If you consolidate, you may only have the option to defer for a few months or under very limited circumstances.
  • Loss of benefits: Your original lender may have offered benefits that you could lose by consolidating at an earlier time, like a principal rebate or interest reduction for 36 months of on-time payments.
  • Longer repayment terms: This is both a benefit and a risk. We noted in our prior post that a longer term could lower the monthly payment. However, it also increases the total amount of money, principal and interest, you will owe in the end.
  • You are not guaranteed a lower rate: Many consolidation offers sell you on a rate reduction, but in certain situations, federal student loan interest rates can only be averaged not reduced outright.
  • You could face prepayment penalties or extra origination fees: Some lenders will charge a fee for consolidation and others may penalize you for paying them off early.

There is a lot to consider when making decisions about managing your debt, which is why you should discuss your financial situation with a bankruptcy attorney. Even if bankruptcy is not right for you, a bankruptcy attorney understands the best ways to address your entire debt situation based on your circumstances and your goals.