Federal student loans are unique because they are enforced not by a lender, by the United States government. Because they really are more like taxes than traditional loans, you cannot discharge your student loans by declaring bankruptcy. In addition, the government can go to great lengths to compel you to repay – it is the government, after all.
With these factors in mind, you must consider that the government allows you to consolidate your federal student loans only one time. Making the decision to consolidate must be taken very seriously, and should be carried out at the best possible time.
Consolidation combines two or more loans into one larger loan with a lower interest rate. If you consolidate, you only will have to write one check each month as opposed to several, and you will save money because of the lower interest rate. You also may be able to spread your repayment over a longer period of time, thereby reducing your monthly payments. Alternatively, you also can choose to accelerate your payments over a shorter period of time, thereby reducing the total amount of interest you will pay.
The best time to consolidate is when interest rates are low. Unfortunately, interest rates have been rising for the past several years and probably will continue to do so. If you have not consolidated your federal student loans as of yet, it probably is a good idea to take action as quickly as possible. If you begin to hear media rumblings that interest rates are about to drop, however, then perhaps you should take a gamble and wait -- so long as you have no problem making your monthly payments in the meantime.
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