Federal student loan repayments resume in October — should you consolidate your loans?

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Millions of federal borrowers have their student loans top of mind with repayments officially resuming in October.

This means figuring out the best way to tackle a new monthly expense — for many, at least $500 a month.
To add insult to injury, your repayment obligations may be split across multiple loans, making it difficult to stay on top of things.

One way to make this additional financial burden a little more manageable is student loan consolidation, where you combine multiple loans into a single monthly payment. But while consolidation will streamline your payments (and maybe other perks like lower monthly payments), it can actually end up costing you more in the long run.

Like with many financial decisions, there are pros and cons to student loan consolidation before making the move. CNBC Select breaks them down below.

Student loan consolidation definitely has its benefits. Here are the biggest pros:

• Makes payment easy: The single, consolidated loan simplifies your student loan repayment with just one monthly bill — a perk for those dealing with different student loan servicers and thus multiple monthly bills.
• Lets you reset your repayment terms: Through consolidation, you can choose a different repayment plan that better fits your current finances.
• May lower your monthly payment: Depending on the type of student loans you have and the repayment plan you choose, consolidation may lower your monthly payment. With an Income-Driven Repayment (IDR) Plan, for example, your monthly payments are calculated based on your income and with a Graduated Repayment Plan, for example, you can extend your loan repayment term up to 30 years via consolidation, giving you more time to repay with lower monthly payments that gradually get larger every two years.
• Doesn't take away federal protections: Unlike with student loan refinancing, student loan consolidation doesn't strip you of federal loan protections like access to forgiveness.
• Applying is easy: You can apply for consolidation through the Federal Student Aid website. There's no fee, your credit doesn't matter (like it does with refinancing) and it shouldn't take longer than 30 minutes if you have all your information ready. Plus, you can see how different repayment plans would change your estimated monthly payments.

If you're like the tons of other federal student loan borrowers worried about payments resuming, consider tools that can help ease the transition back into it. The free budgeting app Mint, for example, helps categorize your expenses so you can see where you can cut back to make room for a new student loan payment.

And the student loan repayment app Chipper takes the spare change from your everyday purchases and puts it toward your student loan debt. Without having to think about it, you're whittling away what you owe and getting that much closer to paying off your debt completely.

Make sure to weigh the above advantages of student loan consolidation with its drawbacks. Here are the biggest cons:

• Could leave you paying a higher interest rate: Your new consolidated loan may end up being more expensive with its new interest rate, which is fixed and is calculated as the weighted average of your loans' original rates — meaning your new rate won't take into account any current rate discounts or rate reductions you may have.
• Tacks on any unpaid interest: Any interest you owe on your pre-consolidated student loans doesn't just vanish. When you consolidate, that unpaid interest gets added to your principal, raising that balance. You are then paying interest on that higher principal.
• May pay more over the life of the loan: Though consolidation can lower your monthly payment by, for example, extending your repayment term, that means you'll end up paying on your loans longer and ultimately paying more over time in interest.
• Makes you lose credit for payments you've already made: If you've been making consistent, qualifying payments under an IDR Plan or plan to pursue Public Service Loan Forgiveness (PSLF), consolidation can wipe that away by resetting your qualifying payments to zero with the new loan. The exception here is if you apply to consolidate before the end of 2023, you will still have your qualifying IDR and PSLF payments count toward forgiveness.

Student loan consolidation makes managing your payments easier and it can lower your monthly bill — an ideal scenario for those borrowers overwhelmed by the thought of adding student loans to their monthly budgets again. The drawbacks to consolidation mostly revolve around it being a possibly more expensive option.

To help you when deciding whether to consolidate your student loans, try out the government-provided Loan Simulator, which tells you the repayment plans you qualify for and estimates how much your monthly payments would be.

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