How to consolidate your student loans
So you’re out of college and in the real world, earning a salary that’s hopefully higher than your starting rate at the frozen yogurt shop you worked at while you were going to school. But your student loans are looming over your head, making it hard to enjoy life. It may seem hopeless, but there are multiple ways to consolidate or refinance student loans that can help make them more manageable. Read on for everything you need to know about how student loan consolidation works, and which options might be right for you.
Understand what student loan consolidation is.
Student loan consolidation is when you combine multiple student loans into one. This can be a good idea if you have multiple loans with different interest rates, repayment plans, or repayment terms. It’s usually not the best option if all of your student loans are at the same interest rate and have the same repayment plan.
A key factor to consider before choosing consolidation is whether it will save you money on monthly payments over time. You’ll need to compare how much you’d pay in total by consolidating with how much you’re currently paying each month on each individual loan (or loans).
Consider private student loan consolidation.
Private student loans are not eligible for direct consolidation or the Public Service Loan Forgiveness program. Private student loans are also not eligible for income-driven repayment plans, interest deductions, or loan forgiveness.
If you have a private loan and want to consolidate it with your federal loan (or vice versa), you may want to contact the servicer of your federal loans and ask if this is possible.
Apply for a Direct Consolidation Loan if you have federal student loans.
If you have federal student loans, you can apply for a Direct Consolidation Loan.
The application is easy and free.
It’s also secure, available 24/7, and available in multiple languages.
Make sure you get the right terms with your fixed rate.
Once you’ve decided which loan or loans to refinance, it’s time to get your consolidation application in and get a decision from the lender. This can take anywhere from 24 hours to several weeks or more, depending on how busy the lender is.
Once you’ve consolidated your student loans, don’t forget about them! It’s easy for people with student debt to lose track of their payments and end up owing late fees as well as penalties when they do make a payment on time. Set up automatic payments through your bank so that they’ll come out of your account each month so you’re never late on your bills again – this will save money in the long run!
Choose a Direct Consolidation Loan only if you want to switch repayment plans.
If you choose a Direct Consolidation Loan, you’ll be able to switch from one repayment plan to another. If your current loan is fixed-rate, you can switch to an income-based repayment plan or extended repayment plan with lower monthly payments. You can also choose to switch from a fixed rate to graduated and standard payment plans if that’s better for your financial situation.
Pick the repayment term that’s right for you.
The right repayment term depends on your income and financial situation.
If you have a lot of money to pay off, consider consolidating your loans with a short repayment term. If, on the other hand, you can’t make the payments immediately because of low income or other factors, consider consolidating into an extended payment schedule.
Attend an exit counseling session before consolidation.
You can’t get a consolidation loan until you’ve completed an exit counseling session. You might find that your current servicer offers these sessions, or they may be available through the Department of Education. If you take out a consolidation loan, the new servicer will send information about how to complete an exit counseling session to help you get started.
If you don’t complete an exit counseling session before consolidating your student loans, it could result in additional costs and interest charges on your federal student loans and may delay the processing of your application for consolidation.
To consolidate student loans, first, educate yourself on how it works, then compare rates and lenders carefully and pick the option that’s best for your financial situation
To determine the best consolidation option for you, it’s important to understand how each process works.
- Federal consolidation: This is done through the federal government, and it may lower your monthly payment if you have high-interest private loans. You’ll also be eligible for special repayment plans that could help reduce the cost of repaying your debt.
- Private consolidation: If a lender or credit union offers this type of consolidation, it could mean lower interest rates than those from federal loans (but not always). However, there are few protections in place if you get into trouble with this type of loan; plus there may be fees involved in getting one backed by a private entity instead of the government or through another type of institution such as your bank or credit union.
- Refinancing: When you refinance any kind of student loan debt—not just those made by lenders—you can borrow more money at favorable terms so long as lenders agree to lend it to you based on factors like income level and credit score (or lack thereof). The advantage here is that refinancing can result in lower payments each month because they’re tied tightly enough together so that any increase/decrease will affect both equally; however this means committing yourself exclusively to one lender rather than having flexibility when times get tough later down line.”
If you have a mix of federal and private loans, then you may want to consider your consolidation options. If you have only federal loans, we recommend that you check out the Direct Consolidation Loan program from the Department of Education as it offers lower rates for borrowers with excellent credit scores. If not, then it’s best to look into refinancing or consolidating through a private lender. Either way, be sure to weigh up your options carefully before making any decisions about how best to manage your debt load.