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:
Popular Ways On How To Consolidate Student Loans
- Federal direct consolidation
- Private student loan consolidation
Federal Direct Consolidation
Most government loans can be consolidated into a federal direct consolidation loan.
It won’t get you a lower interest rate but you can choose to lower your monthly payments.
This means your repayment period will be longer but it can ease your financial burden if you are struggling financially.
Private Student Loan Consolidation
This is also termed as student loan refinancing. It can be done for both federal and private loans.
The better part is that you not only have the freedom to adjust the repayment period but in some instances, you can qualify for a lower interest rate.
When To Consolidate Your Student Loans
Consolidating federal or private student loans can make your life simpler because you will be making just a single monthly payment.
Federal loan consolidation will be a good idea if:
- You want to qualify for loan forgiveness.
- If you wish to enrol in an income-driven repayment plan.
- You struggle to make the monthly payments on all of your federal loans.
When to go for private loan consolidation.
- The interest rate you are paying on your student loans is high.
- Making monthly payments is not an issue.
- You won’t qualify for loan forgiveness.
Types Of Loans That Can Be Consolidated
Private student lenders consolidate almost any private or federal student loans as long as you are a creditworthy borrower.
Most lenders refinance parent PLUS loans. Some even allow parents to transfer loans to their children.
However, only federal student loans can be combined in a federal Direct Consolidation Loan.
Is Consolidation Different From Refinancing?
With federal student loan consolidation, you can stretch out the repayment period even for 30 years.
However, your interest rate will not change. Because there is no interest rate reduction, stretching out the repayment period means you pay thousands of dollars more. Also, in case you qualify for student loan forgiveness, your debt will be cleared totally.
Private loan consolidation is what is termed as refinancing. It allows you to pick a new repayment option based on your current financial situation.
You may also qualify for lower interest rates. This will take a huge burden off your shoulders and even be able to clear your loans faster.
You can save tens of thousands in interest charges. However, you cannot qualify for loan forgiveness. Therefore, this will be the best option if you don’t have federal loans. Also, it can apply if there is a slim chance of qualifying for loan forgiveness.
Qualifying For Federal Student Loan Consolidation
You can only qualify for a Direct Consolidation loan if the loans are still in their grace period. Another case is if you are already repaying the current ones.
You can’t consolidate a student loan when you are currently in default.
How Long Will It Take?
Once you have made the application the repayment period will begin 60 days after the new loan is paid out.
This is why you need to learn how to consolidate student loans. The loan service provider will inform you when the first payment is due.
Qualifying For Private Loan Consolidation
You need to have excellent credit in order to qualify for this. If your credit score is less than 650 you can apply with a relative/consigner/spouse. In order to qualify for refinancing you need:
- To earn your degree. Not all lenders have this requirement but many of them do.
- Make enough money
- Have an excellent history of earnings and credit.
Is it smart to consolidate your student loans?
Consolidating a loan can also be termed as refinicing the loan. It makes the process of payement easier as the monthly payments are well planned.
Will consolidating student loans hurt my credit?
No, this will not affect your credit score.
How do you consolidate your student loans?
Get an evaluation, review your options, submit your application, get your loans paid off, start making payments.