Student Debt – Consolidate or Not?

Key Takeaways

  • When managing student loan repayments, payment flexibility is key.
  • Pay off student loans one at a time versus consolidating them so that you can achieve flexibility and keep options open.
  • Pay off highest interest rate loans first to avoid paying more in interest overall.

One of the principles of debt management is to leave as much flexibility as possible when making debt payments, keeping your options open. That applies to consolidating student loans as well.

When looking at federal or private loans, you probably don’t want to consolidate.

Let’s look at the following example that seems like it’s clear you should consolidate:

You have three loans, all of which have the same balance, interest rate, and a ten-year time frame. You think to yourself, “let’s make it easy and put them all together.”

Not so fast!

Let’s see what happens if you pay one of these off at a time. We’ll assume that additional principal is being paid on these loans to pay them off earlier, as this happens in many cases. We’ll say there’s an extra $200 a month going to principal payments.


However, you are only going to apply that extra $200 a month to one loan.


Guess what? That loan gets paid off in 3 years.

Now your range of payment per month is $230 – $545 per month, meaning, you could pay for the remaining two loans at $230 total per month, or go all the way up to your max total of $545 per month. That gives you more flexibility!

If you apply that extra money to the second loan, that loan gets paid off in another 1 ½ years if you put all your extra money towards it, or 4 ½ years if you just pay the $115 per month.

Now the flexibility you have to pay off your last loan is $115 per month all the way up to $545 with your extra money.

Applying all the extra money towards your final loan pays that loan off in 5 ½ years.

You can visit the following website for a free, easy-to-use student loan calculator that includes those extra payments:

If you consolidated your three loans and applied the extra $200 per month to your payment, you would still be paid off in 5 ½ years. However, by not consolidating these loans, you give yourself much more flexibility and options in case you need to apply some of your money elsewhere.


Another important thing to remember when paying your student loans is that if you have some high interest rate loans and some lower interest rate loans, pay your high interest rate loans off first. It’s best not to “snowball” your payments, which means paying off your smallest debts first. It may feel good to pay off that entire loan because it’s easier to reach the goal of paying it off. However, if that smaller balance loan has a lower interest rate than another loan that has a larger balance and a higher interest rate, you are going to end up paying more money in interest overall.

Until next time, enjoy. Gary

Please note: I reserve the right to delete comments that are offensive or off-topic.

Leave a Reply

Your email address will not be published. Required fields are marked *