What is loan consolidation? Loan consolidation means bundling all your student loans into a single loan with one lender and one repayment plan. You can think of loan consolidation as akin to refinancing a home mortgage. When you consolidate your student loans, balances of your existing student loans are paid off, with total balance rolling over into one consolidated loan. The end result is that you have only one student loan to pay on.

Both students and their parents can consolidate loans.

Should I consolidate my loans? Loan consolidation offers many benefits:

-Locks in a fixed, usually lower, interest rate for term of your loan, potentially saving you thousands of dollars (depending on interest rates of your original loans) -Lowers your monthly payment -Combines your student loan payments into one monthly bill

In addition, consolidated loans have flexible repayment options and no fees, charges, or prepayment penalties. There are also no credit checks or co-signers required.

You should consider consolidating your loans if consolidation loan would have a lower interest rate than your current loans, particularly if you are having trouble making you monthly payments. However, if you are close to paying off your existing loans, consolidation may not be worth it.

How will interest rate for consolidated loan be? The interest rate for your consolidated loan is calculated by averaging interest rate of all loans being consolidated and then rounding up to next one-eighth of one percent. The maximum interest rate is 8.25 percent.

To figure your interest rate, visit loanconsolidation.ed.gov for an online calculator that will do math for you.

How much can I save? How much you save by consolidating loans depends on what interest rate you get and whether you choose to extend your repayment plan. According to Sallie Mae, leading provider of student loans in United States, consolidating student loans can reduce monthly payments by up to 54 percent. However, only way to reduce your payment this much is to extend your repayment plan. You typically have 10 years to repay student loans, but, depending on amount you're consolidating, you can extend your repayment plan all way up to 30 years. Remember that if you choose to extend your repayment term, it will take longer to pay off your overall debt and you'll pay more in interest. There are no preypayment penalties, so you can always choose to pay off loan early.

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