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If you have accumulated a lot of debt in the form of student loans over your educational career, you may be a good candidate for a student loan consolidation. Consolidating student loans can lower your monthly loan payment and make it easier to pay off your student loans faster. Many graduate students and those entering the work world choose a student loan refinance program or decide to consolidate student loans within a few years of graduating college. The process is similar to refinancing a mortgage and is available for most types of student loans.
Student Loan Consolidation Options
Consolidating student loans is a relatively simple process and you have several options available to you. Consolidation loans are available for most types of federal student loans, including:
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Stafford Loans
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PLUS loans
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SLS loans
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FISL loans
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Perkins loans
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Health Professional Student Loans
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NSL
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HEAL
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Guaranteed student loans
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Direct loans
Many lenders and financial institutions also offer private consolidation loans that are designed specifically for students who are carrying private education loans. These loans cannot be consolidated with federal student loans but many people choose to consolidate these loans so that they can get a lower single monthly payment. This type of student loan consolidation simply resets the terms of the loan so the monthly payment may be lower but the borrower may end up paying more interest over the lifetime of the loan.
How to Consolidate Student Loans
In order to consolidate student loans or apply for a student loan refinance program, you need to work with a financial institution or representative that specializes in school loan consolidation. Student loan consolidations don't require a lot of paperwork but there are some things you need to know before you begin the application process. When you are consolidating your federal student loans, the lender will not use your credit score to approve the loan. However, consolidation of private education student loans will require reviewing your credit score.
When you're ready to consolidate student loans, you will need to shop around to find the best interest rate for school loan consolidation. Every lender and financial institution will offer their own interest rate, and the consolidated loan (for federal loans only) will be locked in at a fixed rate. In order to determine your interest rate, the lender will calculate a weighted average of your current loan rats and then round up that amount to the nearest 1/8. This rate cannot exceed 8.25%.
Your interest rate will depend on the types of federal loans you have and the time that the loan started. If you consolidate student loans a few months after graduation, you can usually lock in a very low consolidation rate. You can get an estimate of what your student loan consolidation interest rates are by using the FinAid Loan Consolidation Calculator. This online calculator allows you to enter the loan balances and interest rates for all of your federal loans, including subsidized and unsubsidized Stafford loans, Perkins loans and PLUS loans amongst others. This calculator does not include a calculation of income contingent repayment plans.
Benefits of Student Loan Debt Consolidation
Every financial institution or entity offering student loan debt consolidation and student loan refinance plans extends its own set of benefits, and most will help you to lower your monthly student payments so that paying off the loan can be much more manageable. Some of the top benefits of student loan debt consolidation include:
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Locking in lower monthly payments
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Securing a fixed interest rate for all remaining student loan payments
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Bundling all federal student loans into a single payment
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Interest rate reduction (in some cases)
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Low or no application fees
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Low or no origination fees
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No prepayment penalties (in some cases)
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Online applications available (in some cases)
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Quick and simple application process
Should You Pursue a School Loan Consolidation?
If you have multiple student loans and are making payments to several different student loan accounts each month, you may benefit from a school loan consolidation plan. Consolidating your student loans makes it easier to make payments each month because you are only making a single payment to one debt at a fixed interest rate. All federal student loans can be consolidated at a fixed interest rate while private education loans may have a fluctuating interest rate.
Keep in mind that you cannot consolidate your student loans if you are still in school. You are never required to pay any fees to consolidate your federal loans so beware of any lender that imposes any type of processing fee or other charges when you submit your application.
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