Look before you leap for that consolidation loan

by Brian C. Greenberg

Personal Finance: Student Financial Aid

July 2006

Each year, there is a rush to consolidate student debt - both during college and after graduation. In former days when interest rates were much lower, consolidation made plenty of sense.

But today, refinancing a note that's due in ten years or less and extending it 15 to 20 years can create multiple burdens that may surface after the initial relief of the lower monthly payment has long since worn off.

1) A significant increase in the amount of money needed to satisfy the loan.

2) A possible adverse affect on the ability to finance other asset purchases later -a home, for example.

3) Loss of the deductibility of student loan interest. As personal earnings rise, especially with the added income of a spouse, income limits in the federal tax code trigger non-deductibility.

4) Loss of deferment or forbearance benefits that may have been present in one or more of the loans that are paid off during consolidation.

So look to your future before you leap for that lower monthly payment now.

Brian C. Greenberg is a Marlton, New Jersey CPA and certified college planning specialist. He hosts the television show "College Bound."