Decisions about student loan repayments can significantly impact your finances long into the future, so before you jump into a consolidation loan, research your options and make sure you're going to achieve your purpose without any costly surprises.

Benefits of Consolidating

There are a number of potential benefits to consolidating your student loans. If you have several loans, you may want to consolidate them after you graduate just to simplify your record keeping and bill paying. You may want to take advantage of lower interest rates, or the longer repayment period you get from consolidating. Consolidating may be a good option for you if you have heavy education debt, want to lock in at a fixed rate, or want to reduce your monthly payments and are willing to pay more over the length of your loan in order to do so.

Under the Federal Consolidation Loan Program, if you owe $7,500 or more in eligible federal student loans and you're not in default on any of them, you can consolidate your loans at a fixed interest rate with only one payment a month. The interest rate on consolidation loans is an average of the interest rates on all your student loans, not to exceed 8.25 percent, so you may benefit from locking in when market interest rates are very low. It could save you thousands of dollars over the life of your loans, depending on how much you owe.

The federal program also allows you to extend the term of the loan up to thirty years. Obviously a loan period this long would cost you much more in interest, but there are no prepayment penalties, so you can always pay more or pay the loan off early. Before you extend your loan repayment period, use an online calculator to calculate the true cost over time.

Student loan consolidation has other benefits. Generally, you keep the benefits of most student loans. For example, if you pass away, your student loan is forgiven. Contrast this with using a home equity loan to pay off your student loan — your family would still have to cover the balance of the home equity loan.

You May Not Need to Consolidate

You can consolidate all your loans with one lender at any time without a consolidation loan if you just want to simplify your payments. If a lower interest rate is your goal, remember that after making forty-eight consecutive on-time payments, you may qualify for an interest-rate reduction. This may put you at a lower rate than you could get by consolidating, depending on your current interest rate. To figure out what makes the most sense for you, try Sallie Mae's online loan consolidation calculator in the tools and calculators section of SallieMae.com (www.salliemae.com).