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IS IT SMART TO CONSOLIDATE YOUR STUDENT LOANS?

Loan consolidation involves merging multiple loans into a single one. If you’ve taken out several student loans during your college years, consolidating them can simplify your life in the following ways:

You can turn several loans into a single loan
You can make a single monthly payment instead of many
You can switch variable interest rates to a single, fixed interest rate
You might be able to lower your monthly bill
If you have loans that don’t currently qualify for a federal loan forgiveness program, you could turn them eligible

Students with federal student loans have the option to apply for a Direct Consolidation Loan. This allows them to merge various types of loans, including Unsubsidized and Nonsubsidized Federal Stafford Loans.

Often, students consolidate after their grace period is over. The grace period is when your loans are temporarily in deferment after you graduate.

What about private student loans? While not eligible for a Direct Consolidation Loan, you can consolidate your loans through a lender. This is called refinancing.

HOW TO CONSOLIDATE STUDENT LOANS

1. IF CONSOLIDATING FEDERAL LOANS, START AT STUDENTLOANS.GOV

You can to fill out a Federal Direct Consolidation Loan Application and Promissory Note online. You may need information such as your Social Security Number, driver’s license number, and two personal references.

2. CHOOSE THE LOANS YOU WANT TO CONSOLIDATE

You may not wish to consolidate all of your federal loans. Why? Because some may come with extra benefits, like Perkins subsidized interest, or cancellation and discharge programs. You’ll lose those benefits after you consolidate.

Plus, if you have a loan with a higher interest rate than the others, you may wish to pay that off on its own. That’s because the interest rate of your Direct Consolidation Loan depends on the weighted average of the interest rates for all your loans. It may be smart to pay off that higher interest loan quickly, instead of including it in your Consolidation Loan.

What about private student loans? Since these don’t come with federal benefits, you could potentially refinance them all with a private lender.

3. CHOOSE YOUR STUDENT LOAN SERVICER

For federal loans, you can choose from several servicers. One possible option is FedLoan Servicing, which manages the Public Service Loan Forgiveness program (PSLF). If you plan to work toward PSLF, it may make sense to choose FedLoan Servicing.

For private student loans, there are several private student loan companies that do refinancing. When choosing a company to work with, consider factors like:

Interest Rate Ranges: The interest rate you qualify for depends on your lender, your credit report/eligibility, and the market. As of 2018, variable interest rates range from about 2.5 to 9.09%. Remember that variable rates can get higher or lower over time. Fixed rates, which stay the same, range from about 3.35 to 9% in 2018.
Loan Amount: Some lenders have minimum or maximum amounts you can refinance.
Loan Period: How quickly do you want to pay off your loan? Refinancers may have a minimum loan period, usually from five to 15 years. They may also have a maximum loan period. Remember that the quicker you pay off your loans, the higher your monthly payments will be. But, you’ll save on interest if you pay off your loans quickly.
Hardship Options: Does your lender have deferment and forbearance options? If you have trouble paying off your loan due to an event like the loss of your job, these options could help.
Fees: Compare late fees or other kinds of loan servicing fees.
Extra Benefits: What extras make a particular lender stand out? For example, some offer interest rate reductions if you hit milestone goals – like repaying the first 10% of your principle.

4. DECIDE ON YOUR REPAYMENT PLAN

For federal loans, there may be several ways to repay your consolidation loan. These include:

Standard Repayment Plan – Fixed payments, made over a period of 10 to 30 years Graduated Repayment Plan – Payments start out low and increase over 10 to 30 years Extended Repayment Plan – Fixed or graduated payments; pay off your loans in 25 years Income Driven Repayment Plans – Payments are recalculated each year based on factors like your income and family size

Private student loan refinancing companies do not have the same kinds of repayment options. That said, some lenders may offer more flexible plans.

5. SUBMIT THE APPLICATION

Once you’ve fully understood your options, it’s time to take the next step. Contact the loan servicer if you have questions or need help with your application.

LOAN CONSOLIDATION VS. LOAN REFINANCE

Both student loan consolidation and refinancing are ways to simplify repayment and change your loan terms. Consolidating only works for your federal loans, though.

If you want to combine several private student loans (or private + federal loans), you’ll have to refinance. Student loan refinancing means applying for a new private student loan and using it to pay off your other loans.

There are pros and cons to both. For starters, consolidation typically won’t lower your interest rate. Refinancing usually does, meaning you could save money over the life of your loan.

That said, refinancing student loans depends on factors like your income, credit report, and debts. In other words, your loan terms are based on your creditworthiness. That’s not the case when you consolidate federal student loans.

And, refinancing federal loans with a private lender could mean you lose out on key benefits – like subsidized interest or loan forgiveness.

Depending on the types of loans you have, a combination of consolidation and refinancing may be the ideal plan.

	Student Loan Consolidation	Student Loan Refinance
Which Loans Can I Combine?	Most federal student loans	Both private and federal loans
Can I Lower My Rates?	Can I Lower My Rates? The interest rate on Direct Consolidation loans is based on the weighted average of the interest rates of the loans you’re combining. The good news? This interest rate is fixed, which means it can’t get higher over time. Yes, you may qualify for lower interest rates. It helps if you (or your cosigner) have a high credit score and low debt-to-income ratio.	Yes, you may qualify for lower interest rates. It helps if you (or your cosigner) have a high credit score and low debt-to-income ratio.
Can I Save Money?	Probably not (though fixed interest rates could help). Consolidation usually increases the length of your repayment period. Taking longer to repay what you borrowed could mean you’ll pay more interest over the life of the loan.	Yes, you could save money if you qualify for a lower interest rate. Paying off your loan quicker can also help you save money.
Can I Use Federal Loan Protections and Forgiveness Programs?	Consolidating federal loans other than Direct Loans may give you access to: Income-driven repayment plan options Public Service Loan Forgiveness (PSLF) But, consolidating your current loans means you’ll lose credit for any payments you’ve already made toward income-driven repayment plan forgiveness or PSLF. And if you have Federal Perkins Loans, you’ll lose benefits like subsidized interest and cancellation/discharge options.	When you refinance federal student loans with a private lender, you lose federal benefits and programs. These include: Income-based repayment options Federal loan forgiveness programs Interest discounts or rebates Federal deferment and forbearance options (if you have trouble paying back your loans)
Will I Pay Only One Bill?	Yes	Yes
Who Offers These Loans?	The U.S. Department of Education (often through consolidation loan servicers). Your first step should be to apply for a Direct Consolidation Loan at StudentLoan.gov.	Private lenders, like banks and financial institutions

STUDENT LOAN CONSOLIDATION: THE BIG PICTURE

Americans owe over $1.5 trillion in student loans(2020).
42% of people who attended college had education debt (2017).
The typical student loan payment was between $200 and $299 per month(2022).
43 million borrowers hold Consolidation Loans (2024).

Average aid per full-time equivalent (FTE) student in 2022-23 was:

$15,480 per undergraduate student
$28,300 per graduate student

PRIVATE STUDENT LOAN CONSOLIDATION LENDERS

Lender	Why this Lender	Eligible Degrees	Eligible Loans
LendKey	Choose from flexible repayment plans, like interest-only payments for the first four years. And, pay no origination fees.	Undergraduate and/or Graduate	Private and/or Federal
CommonBond	They offer up to 24 months of forbearance over the life of your loan. And, you’ll pay no origination fees or prepayment penalties.	Undergraduate and/or Graduate	Private and/or Federal
College Ave	They offer 16 loan term options. Choose how long it will take to pay back your loan, between five and 20 years. Plus, qualify for a lower interest rate when you use autopay.	Undergraduate and/or Graduate	Private and/or Federal

FEDERAL VS PRIVATE STUDENT LOANS

Federal student loans receive funding from the federal government, while private student loans are provided by lenders such as banks and credit unions. Additional distinctions between the two types of loans include:

Overall Cost of the Loan. Private education loans tend to have a higher overall cost.

Interest Rates. Private student loan interest rates may be higher than federal rates. Sometimes, private loans have variable interest rates that change over the life of the loan.

Loan Repayment Terms. Private loans often come with less favorable repayment terms compared to federal student loans, which may offer income-based repayment plans and other benefits.

Borrower Eligibility. For private student loans, your credit score may impact your eligibility, and you might need a cosigner. In contrast, most federal loans do not require a credit check or cosigner.

Make sure to explore all available government financial aid programs before considering private student loans. However, if federal loans fall short in covering your college expenses, a private loan could be a viable option.

FINDING LENDERS

Numerous banks, credit unions, and financial institutions provide private student loans. To find the best fit for you, it’s prudent to compare interest rates, terms, and conditions among a selection of top-rated lenders.

COMPARE THESE PRIVATE STUDENT LOAN LENDERS:

Sallie Mae

SunTrust

College Ave

PNC

Citizens

APPLY FOR A LOAN

When exploring private student loans, it’s essential to consider that not all loans are alike, and different lenders may offer products, features, and terms that align better with your objectives. As you delve into potential lenders, here are some crucial factors to bear in mind:

Your Eligibility. Assess whether you seek private student loans without cosigner requirements or if your credit history presents challenges. Some private loans may suit your needs more favorably based on your citizenship status, income, part-time or full-time student status, and other criteria.

Loan Cost. Scrutinize factors such as the loan’s interest rate, interest type (fixed or variable), and associated fees. These elements contribute to the overall cost of your loan. For instance, be cautious when opting for a low, variable interest rate if you intend to repay the loan over an extended period. Variable rates can fluctuate with the market, resulting in higher payments than anticipated.

Loan Features. Certain private loans offer advantageous features, such as cosigner release, deferment options in case of financial hardship, or early repayment opportunities. Additionally, many lenders provide auto-pay discounts, often reducing the interest rate by 0.25 or 0.50 percent. Compare multiple lenders to explore the various features available to you.

HOW TO APPLY FOR PRIVATE STUDENT LOANS

Prior to considering private student loans, it’s crucial to complete your FAFSA and make the most of any federal grants or loans you are eligible for. Additionally, don’t overlook the opportunity to apply for scholarships! If you find that you still require additional funds, then you can initiate the process of selecting a lender and applying for private student loans.

IF YOU’RE ELIGIBLE, HERE’S HOW TO GET A PRIVATE STUDENT LOAN:

Get Ready to Apply. Generally, you can apply for private student loans online. To start, you’ll need to prove your basic eligibility – like citizenship and college enrollment status.

Submit Documentation. You’ll need to provide your personal and financial information to your lender. Your lender may require documents like your Social Security number, a pay stub for proof of income or your monthly housing costs. They may also as for your school’s cost of attendance, the amount of financial aid you’ve already received, your cosigner’s details (if applicable), and other information.

You’ll Receive a Decision. Your lender will need to process your application and analyze your financial and eligibility information, to let you know whether you’re approved. If you’ve applied for your private loan online, you may receive a result pretty quickly – sometimes in minutes! In other cases, a lender may need more information from you to move forward.

Choose and Accept the Loan Terms. Once you’ve been approved for the loan, you’ll need to decide on your interest rate type (fixed or variable), loan term, and repayment plan. You and your cosigner (if you have one) will then sign the loan agreement.

Wait for Disbursement. Your private student loans will be sent directly to your college or university. If you have borrowed more than your tuition actually costs, your school will generally refund the difference to you. You can return that money to your lender. Or you could use it to cover other college costs, like room, board, or your textbooks. It’s always best to borrow the minimum amount you need to cover your education related expenses.

PRIVATE STUDENT LOANS ARE AN IMPORTANT RESPONSIBILITY

Opting for private loans to finance your college education can make your academic journey possible. College opens doors to new career opportunities and a promising future. Nevertheless, it is crucial to be aware of the risks and responsibilities as a borrower. You must ensure that you are prepared to take out and eventually repay your private loans.

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Student Loan Consolidation