There are two common types of student loan consolidation: federal and private. Private consolidation, known as refinancing, allows you to pay off your old loans with new ones at a lower interest rate. Let’s take a closer look at the methods to dovetail the two processes, so you can make an informed decision.
- The Department of Education allows you to combine multiple federal loans into a single loan through their student loan consolidation application. That doesn’t mean, however, that this will lower your interest rates or extend the repayment period.
- Student loan refinancing is a financial process done by private lenders. It involves getting a lower interest rate, which can save you money while giving up federal benefits. It’s only available if you qualify.
Consolidating private student loans
If you have multiple student loans, consolidation is a smart way to replace them with a single private loan. Consolidating your loans can help you lower the interest rate on your replacement loan so you’ll save money in the long run!
Your financial history — including your credit score, income, job history, and education — will influence the interest rate you’ll receive. You typically need a high credit score, too. Rates for services or personal loans vary but typically range from 2%.
Consider private student loan consolidation if you have:
- Existing private student loans.
- Good or excellent credit is generally defined as credit scores above 690.
- A stable job.
- A co-signer with those qualifications, if that doesn’t sound like you.
While this option may be appealing, the convenience of not having to make payments according to your ability to pay comes with a disadvantage. For starters, you’ll lose protections specific to federal student loans, like the opportunity for loan forgiveness.
For students who don’t have the resources to make payments on a private student loan, state-backed student loans and grants can be helpful. Some lenders will also consolidate private loans with federal loans, so you might want to consider doing this with the lender that offers you the best deal.
The idea behind this process is not just to help you pay for one large payment, but also to ensure that you get a lower interest rate based on your financial history.
The good thing about consolidation is that the amounts are quite often the same. However, with different scenarios and circumstances, it’s good to consider a few things before you decide what you would like to do. Use a consolidation calculator to help simplify the decision-making process.
You can also check out current rates from private refinancing lenders!
Federal student loan consolidation
Are you struggling to make your student loan burden a little lighter? Consider federal loan consolidation, which offers the benefit of a single loan bill and potentially lower monthly payments with no credit requirement. It’s only for federal loans, so keep an eye out for lower interest rates.
- If you need to consolidate your student loans to be eligible for income-driven repayment or public service loan forgiveness, this is the case if you have Federal Family Education, Perkins, or parent PLUS loans.
- Home-study students can request the cancellation of their student loans and financial support.
- Having trouble finding a loan that is significantly lower than the payment you need? Your best bet is to take out a federal loan.
- If you’ve been lost in a sea of debt, want to stop defaulting on student loans and get your life back on track.
When you consolidate federal loans, the process is pretty straightforward. The government pays off your loans and replaces them with a direct consolidation loan, which means you’re generally eligible once you graduate, leave school, or drop below half-time enrollment. Having your loans consolidated through the Department of Education can be free and usually doesn’t require paying service fees to companies that offer loan consolidation.
When you consolidate federal loans, you will give up your old loan amount in exchange for an interest rate lower than what you originally started out with. For example, if your current monthly payments before consolidation are at 6% after it is done, the interest rate you are paying will drop to 5.63%.
You’ll also receive a new loan term ranging from 10 to 30 years. Your new repayment terms will generally start within 60 days of when your consolidation loan is first disbursed, and are based on your total federal student loan balance, amongst other factors.
Frequently asked questions
Should you consolidate your student loans?
If you are consolidating federal loans, your payments may need to be increased very slightly. When trying to lower your interest rates, you might want to consider refinancing as well as consolidation.
Can you consolidate with federal student loans?
You can consolidate federal student loans by doing one of two things: you can either pay off your loan with the Department of Education or a private lender. One way to lose access to government programs is by refinancing with a private lender.
How do I Consolidate my student loans?
If you want to consolidate your federal student loans and make the process a little easier, you can do so at studentaid.gov. If you need to refinance those loans, you’ll have to apply directly with the lender on their website.
How to consolidate federal loans
If you need assistance with your student loan consolidation application, log into studentloans.gov. Click on “Complete Consolidation Loan Application and Promissory Note.”You’ll need to complete the form in one session, so gather what you’ll need from the “What Do I Need” section before you begin filling out the information.
- Enter which loans you want to consolidate and do not want any interest-only loans.
- Choose payment plans based on your loan’s balance or pick one that ties your payments to income. If you choose an income-driven plan, fill out the Income-Driven Repayment Plan Request form next.
- First of all, be sure you read the terms before submitting the loan consolidation form online. Also, wait until your servicer confirms the consolidation is complete. You’ll have to continue making student loan payments as usual until that time.
When you’re facing default, it can be tough to come back from that. There are a few choices of options left for you, and one option is consolidation. This means you have to keep your loan on time for three months straight. Also you have to enroll in an income-driven repayment plan.
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