How to consolidate student loans and the benefits of consolidation.
Over 40 millions Americans hold a record-breaking amount of student loan debt. There are ways to consolidate these student loans for free, which will provide lower interest rates as well as a more streamlined repayment process. In fact, many college graduates are so deep in debt that they are putting off major milestones like buying a house, getting married, or starting a family. If you are struggling to afford your monthly payments, here is how you can consolidate your student loans and learn why you should do this, as well as the benefits to you and lenders to apply at below.
Benefits to student loan consolidation
A consolidation lets you combine more than one student loan in order to make a single monthly payment, often times at a lower interest rate. This will lower the monthly expense that a borrower has. In addition, from the consolidation you also get a fixed interest rate for the life of the new loan.
You can cut your monthly payment by consolidating your federal (or private) student loans into a single loan. There are a number of lenders and banks that will do this, including (but not limited too) Bank of America, Wells Fargo, Chase, the federal government and others. Your interest rate will be a weighted average of the previous rates on your respective loans.
Another benefit is that by consolidating your debt into a single Direct Consolidation Loan, you can extend your repayment plan up to 30 years, further lowering your monthly payments. While this provides you more time to pay down the principal, the downside is anytime you extend your repayment, you end up paying more in interest in the long term.
Lower your monthly payments
Consolidating your bills and loans can help lower interest rates as well extend how much time you have to pay off student debt to up to 30 years. This extension to your loan can really help reduce your monthly payments, even by as much as 50% or more. This approach can both help reduce your interest rate and maybe even extend the payment terms. More on Consolidating your bills.
Combine all your student loans
One company will take over all your student loans and debt so that you only get one monthly bill. You only have to deal with one company and not several lenders. This can help people get organized as one bill you need to pay, one monthly payment = easy! At the same time you do this, look into reducing the interest rate from consolidation.
Do some homework
Once you have consolidated your student debts and loans, this is often the one time you can do this. In general, you are allowed to consolidate again only if you have an eligible student loan that was not included in your previous consolidation. So be sure you review all of your accounts, talk to your lenders, and take advantage of the process as you generally only have once chance to get it right.
Use a debt elimination or a debt management plan (DMP)
There are other debt reduction as well as elimination plans offered by non-profit credit counseling agencies and other organizations. If you take this approach, be sure to read the fine print of any agreement. More on these debt reduction plans.
Federal vs. private consolidation
The process for federal backed loans is free, and the Department of Education is involved in the process. On the other hand, while private student loans don't offer as many options as federal loans do when it comes to consolidation repayment plans, you might be able to save money on interest by consolidating them with a bank or lender that offers a lower interest rate (or more favorable terms). If you have a good credit score after leaving school or as your start you life, then you could likely qualify for a lower interest rate on your private student loans than the rate you were initially given.
There's a chance that you could even save money by refinancing your federal loans into private loans. In order to see whether refinancing is a good option and whether it benefits you, calculate the average interest rate you pay on all of your college debt. Then, compare it to the refinancing rates available.
Lenders that refinance student loans
There are several private and government backed lenders or banks that offer this form of financial assistance to current or former college students. They are below. Each will offer their own terms and conditions as well as interest rates.
Each lender, including SoFi, may have certain requirements that need to be met, both around credit scores, income requirements, employment, and other criteria. Call a bank or lender below to learn how, why, and the benefits to consolidating student loans.
MOHELA, 1-800-722-1300
OSLA Servicing, 1-800-722-1300
Granite State - GSMR, 1-800-722-1300
Navient, 1-800-722-1300
FedLoan Servicing (PHEAA), 1-800-699-2908
Great Lakes Educational Loan Services, Inc., 1-800-236-4300
Nelnet, 1-866-426-6765
HESC/EdFinancial, 1-800-722-1300
Other banks and lenders do this as well. Find the best lenders for loans to consolidate debt.
There are national lenders too that help with student loan consolidation. Find details on major lenders including the following.
Pros and cons of consolidating your student loans
A consolidation in particular may help those who took out a federal loan before July 2006, when interest rates on loans were variable and changing each year. Another candidate for consolidation is for people who may want to "consolidate" a single federal loan if it has a higher, variable interest rate, into a more competitive loan.
After you have graduated or been out of school, and if you are running into trouble making payments, a student loan consolidation is a way to get renewed deferment rights. So this will then allow some deferrals to take place for unemployment or other conditions as noted above. Note that most federal loans can be consolidated under the Federal Direct Loan Consolidation program.
One con to proceeding with the consolidation is that it will usually extend the repayment terms and length. For example, if someone only had 15 more years left on the money they borrower, depending on how they consolidate it, that time-frame could be extended to say 20 years. This means the overall cost of the loan will be higher as it is for a longer period.
A pro to consolidation is that there is no cost or even a fee involved to consolidate. Some federal student loans, such as the Stafford and PLUS loans, may charge a small cost that is deducted from the disbursement check, but there will never be an upfront fee that you need to pay.
Details on why student loan consolidation helps
In short, if can't afford your current monthly student loan payments, then you should look for a better alternative to defaulting on your debt. Many borrowers qualify for lower payments from consolidation plans, either from private lenders or the government. You might be able to cut your interest rate by consolidation your loans into a new one - especially if you have private loans and a good credit score.
Search online for student loan repayment assistance programs that could help you. If you owe a lender such as Sallie Mae (or others) more than $30,000 in federal loans, you can qualify for an extended repayment plan that offers you lower monthly payments. Another option is to consolidate all of your federal debt into a Direct Consolidation Loan - which allows you to extend your repayment plan up to 30 years. Find details on federal resources from Student Aid.gov. Read more.
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