A consolidation loan is a type of loan that allows a borrower to combine several individual loans into one new single loan. This can typically simplify the borrower's paperwork (one loan payment to make instead of several) and may bring additional benefits. For instance, using the federal consolidation program, the borrower can extend repayment from the standard 10-year period to 12, 15, 20 or more years (depending on the amount consolidated). This will lower the monthly payment, a great deal, but will increase the overall cost of the loan with interest over time. But it still provides you with relief, until later on in life you can choose to pay it off early. Some lenders provide additional borrower rewards to offer more savings.

Consolidation of private student loans is a relatively new option, and many lenders are still trying to find out what works best for them. Make sure to do you due your due diligence before consolidating your private student loans - be aware of prepayment penalties and monthly payment rates that start out attractively low but increase over time.

You have options, know them all!  First thing, contact your current lender(s) about restructuring the repayment on your existing loan(s). Federal student loan repayment can be extended and modified in ways to help you attain a more manageable monthly payment.

Consider obtaining a federal consolidation loan from the Department of Education's Direct Loan Program. The interest rate on a federal consolidation loan is fixed, and the length of a federal consolidation loan can be extended up to 30 years which can also help lower the amount of your monthly payments.

Here’s what you have to watch out for:

First off, they tell you about the free Loan Consolidation program of the Federal Government’s U.S. Department of Education. Now when borrower hears “Federal Government” they assume that’s who they are currently on the phone with and borrowers will feel more trust and be more willing to give out personal information. This is what the private Consolidation company portrays.

Other tricks that are used include:

• convey a sense of urgency
   
• They claim NOW is the best time to consolidate because interest rates are low.
   
• They use that sense of urgency and the interest rate to try and get you to consolidate now, before interest rates go up.
   
• They normally ask for a student account number, which is usually a Social Security Number so they can find your record on the National Student Loan Data System (NSLDS) and see if you are eligible. This is code for "give me your social security number!"
   
• They offer a ¼% discount on the interest rate if you have payment made by automatic payment direct debit from your bank account. Now in my opinion, you should never give any creditor access to your bank account.
   
• They reiterate it’s a Federal Program through the Federal Government.