Is Consolidation Right For You
Great, youve learned about consolidation! Ask yourself these questions before consolidating:
- Did I take out multiple student loans?
- Do I have a steady income?
- Am I finding it difficult to stay on top of my payments?
- Do I have good credit / can I build good credit?
- Am I having a hard time keeping track of my various loan terms?
- Do I want a lower interest rate?
- Do I want lower monthly payments?
- Am I willing to give up federal benefits for any of the above?
Did you answer yes to a majority of these questions? Definitely consider consolidating your loans.
Is It Beneficial To Consolidate Student Loans
A major benefit of consolidating loans is that it can simplify repayment, giving you only one monthly bill. Rolling multiple loans into one can also offer you more time to repay the debt, which can reduce your monthly payment. However, if some of a loan comes with borrower benefits, you may lose those benefits when you consolidate the loan.
Three: Complete The Application
There are five critical sections that you will need to complete for your consolidation loan application. This application is free, and you have the option to either complete it online or print out a hard copy and send it in. If you want a faster response, it is best to complete the application online.
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How To Consolidate Student Loans
Wondering how to consolidate student loans? Student loan consolidation allows you to combine all your existing loans into a single one.
New repayment terms and interest rates are also negotiated in the consolidation process.
Student loan consolidation can be federal or private. However, federal loan consolidation is only available to those who have federal student loans.
Student loan consolidation makes it easier to track your student loans and also makes it easier for you to pay.
At the end of the month, you will be sending a single cheque instead of dozens of them which can be difficult to track.
If you are wondering how to consolidate student loans keep on reading to learn more:
Cons Of Direct Consolidation Loans
- While you will get a fixed interest rate, the fact these loans use a weighted average of your current rates means you wont save money on interest.
- Extending your repayment timeline could mean having to pay more interest over time.
- Any interest thats outstanding on your original loans will get added to your new loan balance, which means that interest may accrue on a higher principal balance than might have been the case if you had not consolidated, according to the U.S. Department of Education.
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What Does It Cost To Consolidate Student Loans
Federal loans fall under No Cost Consolidation – meaning there are no fees to consolidate your federal student loans. While there may be costs associated with a higher interest rate in the long term, there are no upfront fees for loan consolidation.
Some private lenders may have a cost associated with refinancing and consolidating your student debt, but that varies from lender to lender.
Consolidating Defaulted Student Loans
Defaulted student loans can still be consolidated under one of the income-driven repayment plans. To enroll in a different repayment plan, you need to make three consecutive on-time payments.
Your loans will no longer be in default once they are consolidated into a Direct Consolidation Loan, however, it will remain on your credit report as a negative mark. As an alternative, you can opt to enter student loan rehabilitation, which will remove defaulted student loans from your credit report.
It is unlikely you will find a lender to consolidate private student loans in default. In this case, contact your lender and request repayment assistance. They might be willing to offer forbearance or temporarily adjust your monthly payment. Do this before they send your debt to collections. The original lender is more likely than a debt collector to work with you.
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Common Consolidation Questions Answered
When you graduate from college, youre not alone leaving school with student loan debt. In fact, a 2020 study by Mark Kantrowitz estimates that undergraduates who graduated from college owe about $29,900 in student loans, on average. That number might be a result of taking out several student loans. Juggling all of those loans with different lenders, monthly payments, and bill due dates can be stressful.
If youre looking to streamline your loans, loan consolidation and student loan refinancing are two options to consider. While the terms are often used interchangeably, theyre actually very different processes, each with their own unique benefits and drawbacks.
Weve created this article to answer common student loan consolidation and refinancing questions, along with quick links below to jump to each section:
Loan And Servicer Section
The first section you will complete is the loan and servicer section. You will need to select which loans you wish to consolidate. Once you choose your loans, you will receive a new calculation for your new consolidation loan.
It will include your interest rate and how much you can expect to pay back each month. In this section, you can also request a grace period and choose your new loan servicer.
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Should I Consolidate Or Refinance My Student Loans
Consolidation combines loans into one monthly payment with one servicer. Consolidating your loans may make it easier to keep track of your loans if you have more than one student loan with more than one servicer or company.
There are two types of consolidation loans. The type of consolidation loans available to you depends on whether you have federal or private student loans.
Is Refinancing Right For You
- Am I looking for a lower interest rate?
- Do I want a shorter repayment period?
- Am I looking for lower monthly payments?
- Am I willing to give up federal benefits for any of the above?
- Do I have good enough credit / can I build better credit?
- Do I have a steady income?
If you can comfortably answer yes to the majority of these questions, you might be ready to refinance your student loans.
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Who Should Consolidate Student Loans
Both federal and private student loan consolidation can simplify your life by allowing you to make a single monthly payment on the loans you combine.
Consider federal loan consolidation first if:
- Youre having trouble making the monthly payments on your federal loans
- You want to enroll in an income-driven repayment plan
- You hope to qualify for loan forgiveness
Private loan consolidation may be a better option if:
- You wont qualify for loan forgiveness
- Youre paying high interest rates on your student loans
- You can afford your monthly payments
Learn More: The Complete List of Student Loan Forgiveness Programs
Pros Of Direct Consolidation Loans
- You get the benefit of combining several new loans into one new one that only requires one monthly payment.
- You get to maintain the federal status of your student loans, which includes access to benefits including deferment, forbearance, and income-driven repayment plans.
- You may qualify for a lower monthly payment that works better for your budget if you extend your repayment timeline.
- Direct Consolidation Loans come with a fixed interest rate that will never change.
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Consolidating Private Student Loans
The process for consolidating private student loans is focused around your credit score. If your credit score has improved dramatically since graduation, you may be in line for a lower interest rate. Home equity loans are another way to consolidate a lower interest rate. There also could be a variable interest rate loan that suits your situation. Contact several lenders before making a final decision on consolidating your student loans through a private lender.
Why Consolidate Student Loans
It simplifies repayment and could save you money. It is quite common for people with student loans to deal with 10-12 lending institutions, which means 10-12 payments and 10-12 due dates each month. When you consolidate student loans either federal or private its one payment to one lender, once-a-month. Simple.
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Which Loans Are Eligible For Private Consolidation
You can refinance both the total amount of your federal and private student loans. This includes all types of federal loans, including Direct Loans, Stafford Loans, and PLUS Loans.
Its important to note that when you refinance, you can decide which loans you want to refinance and which, if any, youre happy to keep those student loan repayment terms. Some people may want to refinance all of their loans, and others may want to refinance only some of them.
Again, keep in mind that when you refinance federal loans and private loans into a new private loan, you will no longer be eligible to use the governments income-based repayment programs.
To decide, you should look at the terms for each of your current loansand whether refinancing can help you do better. You can get an estimated rate from Earnest in just two minutes, without affecting your credit score.
Federal Student Loan Consolidation
When you consolidate federal loans, the government pays off your individual debts and replaces them with a direct consolidation loan. Youre typically eligible for this when you graduate, leave school or drop below half-time enrollment.
- Go to studentloans.gov and choose Complete Consolidation Loan Application and Promissory Note.
- Enter which federal loans you want to consolidate.
- Choose a repayment plan. Youll either get a plan that ties payments to your income, or a timeline based on your loan balance.
- Keep making your regular student loan payments until your servicer confirms the consolidation has gone through. You dont want to miss a payment on accident.
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Can You Consolidate Student Loans That Are In Default
You may be able to consolidate student loans that are in default.
If youve defaulted on federal student loans, you can usually consolidate through a Direct Consolidation Loan. The default will remain on your credit record but consolidating can help get you back on track.
However, private lenders will generally not allow you to refinance loans that are in default. If youve missed payments on your private loans, contact your lender as soon as possible to discuss repayment options.
When Should I Consolidate My Student Loan
If you are not in school or are enrolled less than part-time and if the loan under your name is in a repayment or grace period, you may be eligible for loan consolidation.
Are you having trouble making your monthly federal loan payments due to job loss, under-employment or any manner of personal and professional challenges? Loan consolidation might be a helpful solution. Though the repayment terms may change through consolidation, you may be able to take advantage of short-term savings by having a lower monthly amount due.
You may also be interested in loan consolidation if youve recently graduated and want to get a lower fixed on all your federal loans before your grace period ends. This is a smart way to get ahead of repayment and plan ahead for future financial needs and decisions.
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Two: Gather The Information You Need
Before you even start the process, there are a few documents that you will want to have on hand. Make sure that you have your personal income information, loan record information, two references who have known you for at least three years. If you complete your application online, you will already have access to your federal loan details.
How To Consolidate Private Student Loans
When you consolidate student loans through private lenders, you essentially are refinancing your loans. Combining several student loans, whether federal or private, only makes sense if you are going to receive a lower interest rate and reduced monthly payment terms.
The market for consolidating and refinancing student loan debt has exploded over the last five years. Online lenders SoFi and LendKey have jumped to the front of the line among newcomers who are becoming big players in a business that traditionally was dominated by banks and credit unions.
SoFis success is tied to innovative services that start with putting the entire loan application process online and making it fast. Very, very fast. It takes just a few minutes to fill out the application and even less time usually about two minutes to receive an answer on whether youve been approved.
Some more attractive features of dealing with SoFi include:
- You can consolidate federal and private student loans into one package
- You can borrow the full amount of your qualified student loans
- Fixed interest rates from 3.25%-7.25% APR and variable rates as low as 2.58% were available in February of 2018
- Loan terms of 5,7, 10, 15 or 20 years
- A 0.25% rate reduction for automatic payments
Their website even states that the company wants people who have a responsible financial history and a strong monthly cash flow. In other words, it might be tough to qualify with a low credit score or income.
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Should You Consolidate Student Loans
If you have missed payments because you struggle keeping up with multiple loan servicers and multiple repayment dates, consolidation or refinancing is a valid choice. Making one payment every month instead of many payments makes life simpler.
You can go through the Direct Loan Consolidation program because it lets you keep the door open for income-based repayment options that result in lower monthly payments.
However, it is important to know that if your payments are part of qualifying for any forgiveness program, the clock restarts when you consolidate your debts. For example, if you made three years of qualifying payments for Public Service Loan Forgiveness, then consolidate your loans, you would lose the three years of qualifying payments and the clock would start over again.
The big issue for most borrowers is can they afford the monthly payment? Thats what consolidation and refinancing are remedies for: giving you a payment that doesnt break your budget every month.
However, if youre making enough money right out of the gate and very dedicated to repaying your loan, the fastest, most efficient method is to go with the standard repayment program and get it done in 10 years or less!
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When To Consolidate Or Refinance Student Loans
By Erin/ Last updated:
This post is by our regular contributor, Erin.
Student loans are a burden that millions face.
Sadly, most choose not to face it, which has resulted in nearly 7 million Americans defaulting on their student loans.
Defaulting has some serious consequences.
As many of you probably know, you cant get rid of student loans easily sometimes, you cant get rid of them at all, especially if you have private loans.
So what are you to do when facing an insurmountable, overwhelming pile of student loan debt?
Well, consolidating or refinancing may be an option to consider.
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Student Loan Refinancing Vs Consolidation
Student loan refinancing is the act of paying off your student loans with one new loan very much like consolidation. The difference is you can combine private and federal loans into one this way, which isnt possible with federal loan consolidation. And refinancing is offered only by private lenders, not the federal government.
Refinancing can help you turn a variable interest rate into a fixed rate if thats your goal. Pursuing student loan refinancing can also be a good idea if you want to make a single loan payment every month or lower your interest rates. But it doesnt come without risk. For example, if you have federal loans, refinancing them means turning them into private loans. And that means losing out on important benefits like student loan forgiveness and generous payment postponement options.
Consolidating multiple loans through the federal government turns them into a single direct consolidation loan. That gives you a single monthly payment and keeps your loan federal so you can maintain the protections that come with it. Consolidating federal loans generally does not lead to an interest rate reduction, though. Your new interest rate will be a weighted average of your previous rates, rounded up to the next one-eighth of 1%.
The Importance Of Interest Rates
A lower interest rate sounds all well and good. But, how much does it actually impact your student loan? We want to really emphasize how much an interest rate can affect the total cost of a loan. Lets take a look at these examples.
*Note: Total interest paid and savings will depend entirely on whenyou refinance the loan. Keep in mind, these numbers are meant to highlight how much an interest rate will affect the total cost of the loan, rather than actual calculations of potential savings.
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The Difference Between Student Loan Consolidation And Refinancing
Most individuals repaying a student loan have heard the terms, but don’t understand what they mean, or how they differ. We’d like to provide some clarity to for those of you trying to understand the difference and asking questions such as:
- How will my interest rate change if I consolidate? What about if I refinance?
- Which of my loans are eligible for each option?
- Will my monthly loan payment be reduced either way?
When To Refinance Your Student Loans
Despite the fact that you can refinance whenever you want, there is a best time to refinance student loans. Its after youre earning a stable income, made a few successful repayments, and managed to build your credit history. Subsequently, lenders often offer better interest rates to borrowers who meet these three requirements. The earlier you refinance your loans at a lower rate of interest, the more you will save in interest payments.However, this can take a few months to a year after graduation. You have to wait till you have a steady income and time to improve your credit score. You may find it difficult to refinance immediately after graduation. Even if your request is approved, you could pay a much higher rate of interest. Unfortunately, it may not be worth it in the end.
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