Jen Williamson Updated on January 15, It could happen to anyone. You start paying your loans with good intentions, but life happens—maybe you lose a job, get sick or injured, or take a big pay cut—and you fall behind on your payments.
Now your credit is trashed. When you get into a situation like this, you may think that consolidating your student loan payments may be a good strategy to gain control of your finances. And it can be. The good news is that if you have federal student loans, you can usually consolidate them even if you have bad credit.
The bad news is that consolidating private student loans may be a little harder—but not impossible. What is consolidation, really? Consolidation generally only applies to federal loans, which you can bundle through a Direct Consolidation Loan with the U. When you refinance, a private lender pays off all your individual loans and issues you a single new loan—ideally with a lower interest rate and better terms.
There are a few key benefits to doing this. Consolidated loans have a fixed interest rate based on the weighted average of the interest rates on all your loans, rounded up to the closest one-eighth of a percent.
If your original loans have variable interest rates, getting a fixed rate is usually a good move. Consolidating your federal loans gives you the option of paying them through an income-driven repayment plan such as the Income-Based, Pay-As-You-Earn, or Income-Contingent plan. Any of these plans can dramatically lower your monthly payment.
Get someone with good credit to cosign This advice applies to refinancing, not consolidating, your student loans. If you have both private and federal loans, you can refinance both with a private lender. Refinancing your federal loans with a private lender will cut you off from federal benefits such as income-driven repayment plans.
It will also disqualify you from student loan forgiveness programs through the government. However, refinancing with a private lender may result in a lower interest rate—so there are trade-offs. And if your credit is really bad, you may have a hard time finding lenders to refinance with you at all. Private lenders want to see a good credit history before you can refinance your student loans. If your credit is tarnished, a cosigner with great credit is the fastest way to get around that problem.
That means some lenders are a little more lenient in the credit scores they accept for student loan consolidation. People with low credit scores are prime targets for disreputable lenders. See our picks for the best banks for student loan refinancing. Take a look at credit unions Credit unions are nonprofit banks that often serve a specific community.
Because they are not for profit, they can offer better terms and lower interest rates than traditional banks do. Some will refinance your loans even if your credit score is less than ideal.
LendKey acts as an online portal that helps you search for refinancing options through community lenders and credit unions across the country. It's a highly effective way to view loan offers that might not normally be on your radar screen. Consider peer-to-peer lending This is a relatively new option, but it may be worth a look if you're unable to refinance with other lenders.
Online peer-to-peer lending platforms connect individual lenders and borrowers for both commercial and personal loans. In some cases, peer-to-peer platforms are less stringent about credit score requirements. Check out our Student Loan Refinancing Calculator to see how your monthly payments might be affected. She has written for a variety of industries, including software, education, business, and personal finance.
Prior to that, she worked at an adult literacy nonprofit in Philadelphia, where she coached nontraditional students in passing the GED test and applying for college.