The Benefits of Consolidating Student Loans

Dear Experian,

Does it look bad to lenders checking your credit if student loans show up as several different loans? In other words, why consolidate?


Dear SAR,

Student loans usually appear on a credit report as multiple loans, but that doesn't look bad to lenders. The reason has to do with the way student loans actually work as opposed to how we think about them.

Even when you are applying through the same lender, you are basically taking out a new loan each semester or year. Each of those loans is a separate account, so it is standard practice for students to have multiple loans reported in their history.

It is a little confusing because after you graduate, you probably will write one check to the lender each month to pay for the entire amount you borrowed. As long as you make the payments on time and in full, the multiple student loans showing on your credit report will not have any negative effect on your ability to get new credit.

Having more accounts is not automatically a negative factor in your credit history. For such installment loans, the important factors are how much total debt you owe and, of course, most importantly if you have missed any payments.

Consolidation is a different matter altogether. It can be helpful if you have education debt from multiple lenders or student loan guaranty companies.

To consolidate student loan debt, you get a single loan that is then used to pay in full your outstanding debt from the various lenders who provided you with student loans. By doing so, you "consolidate" your student debt into a single loan.

The new loan typically has a longer repayment period, often as much as 15 years, but may have a lower interest rate. The result is that you now have a single student loan payment that is lower than it was with multiple outstanding loans. That can help you meet your other financial obligations.

The trade off is that because you repay the debt over a much longer period, it will cost you more over time to repay, even at a lower interest rate.

Thanks for asking.
The "Ask Experian" team