How to Consolidate Private Student Loans When you consolidate student loans through private lenders, you essentially are refinancing your loans. Combining several student loans, whether federal or private, only makes sense if you are going to receive a lower interest rate and reduced monthly payment terms. The market for consolidating and refinancing student loan debt has exploded over the last five years.
Online lenders SoFi and LendKey have jumped to the front of the line among newcomers who are becoming big players in a business that traditionally was dominated by banks and credit unions. Some more attractive features of dealing with SoFi include: You can consolidate federal and private student loans into one package You can borrow the full amount of your qualified student loans Fixed interest rates from 3.
SoFi will put a hold on payments for three month stretches up to a total of 12 months and even help you go through the job hunting process. There are some issues to consider with SoFi. Though the minimum credit score to apply is , the typical SoFi customer has a credit score above Most of its clientele are graduate students and those with law school or medical degrees. LendKey does a lot of the same things, only it uses a network of community banks and credit unions to fund the consolidation loan.
Like SoFi, the application process for LendKey is completely online and takes around 10 minutes with a response time of about three minutes.
However, there are a few twists in the LendKey program worth noting. Each of them operate on essentially the same platform as SoFi and LendKey, with very slight differences in interest rates and loan terms offered. Interest rates do drop. Your credit score can improve.
That combination makes you an attractive borrower and should result in lower monthly payments. The average borrower has seven loans and three loan servicer companies when they graduate. Consolidation means one check to one lender, once-a-month. Perks are reduced or gone. You can only consolidate federal student loans one time. It also could affect your eligibility for Public Service Loan Forgiveness program so check before consolidating.
End up paying more. Interest rates in for direct unsubsidized loans were 4. Hard to imagine beating that rate. Consolidation is combining the various lenders that make up a typical federal student loan and taking out one loan that pays them all off. Since there are nine student loan servicers out there — and many of the 44 million borrowers must deal with several of them — consolidating them down to one should make repayment less confusing, if nothing else.
Doing so through the Direct Consolidation programs, however, means you will not lower your payments. In fact, they could go up. Refinancing, on the other hand, should only be done if it is going to lower the interest rate you pay.
Private lenders can do that because they use factors not used by the Direct Consolidation Loan program, to arrive the interest rate. For example, private lenders will use your credit score and income to arrive at a rate that might be lower than what you are paying. They also can consolidate federal and private loans, while the Direct Consolidation Loan program does not allow private loans to be consolidated.
While both may be eligible for consolidation, it is important to think of these two types independent of each other when considering consolidation. Federal Student Loans Federal student loans are the easiest and most beneficial to consolidate because they offer low interest rates, increased payback terms which decreases the monthly cost and because they reduce the number of lending institutions you have to pay every month.
For example, instead of making multiple payments to multiple lenders at various times of the month, you simplify the equation by making a single monthly payment. Learn more about fedreral student loans Private Student Loans Private student loans are granted and managed by lending institutions — banks, credit unions, college foundations — and typically charge a higher fixed or variable-interest rate than federally funded loan programs.
Private student loans are credit-based, meaning student borrowers with high credit scores will pay lower interest rates than those with low scores because banks assess the risk of each borrower. Learn more about private student loans Federal vs.
Private Student Loans All students are eligible for federal loans, regardless of financial need. You can consolidate Direct Student Loans using one of several income-based repayment plans and there are loan forgiveness programs. With private loans, your credit score is a major factor in whether you qualify for a loan.
You may need a co-signer. Debt consolidation is one of the few repayment options available on private loans and there are no loan forgiveness programs.
A federal Direct Consolidation Loan cannot consolidate private and federal loans, only multiple federal loans. Private lenders can consolidate private and federal loans, but at the cost of losing valuable federal repayment options.
Income-based repayment plans, loan forgiveness and deferment and forbearance are some of the perks of borrowing from the federal government. If you plan to take advantage of any of these options, you should consolidate federal and private loans separately. Some federal loans require consolidation to be eligible for alternative federal repayment plans.
Be aware that consolidating federal loans restarts the process for federal loan forgiveness. Process for Consolidating Federal Student Loans Get an Evaluation The application process for student loans can take as little as 30 minutes. To get started, call Debt. Your options are determined by the amount of debt you carry and the difficulty you have meeting monthly payment obligations.
Consolidating student loans into one payment could free up additional cash or help to structure payback of your loans on more favorable terms. Review Your Options The first stage of review to verify how many of our loans qualify for consolidation. Then decide if you want a payment plan based on your current income or prefer a longer repayment period to get the lowest fixed payment possible.
Our partner will explain all the options available and give you a recommendation. It helps to have your student loan login and PIN so you can provide up-to-date information on the status of all your federal loans. Submit Your Application When you decide to consolidate, our partners will make the process easy for you. They will handle all the hard work. The federal student loan application process is detailed.
One mistake or omission can result in a rejection. Your paperwork will be prepared and submitted for you, after your approval. Get Your Loans Paid Off Once you receive application approval, your current federal loans will be paid off in less than 90 days and then you begin paying on the consolidation loan. Take advantage of this opportunity. All federal loans have fixed payments, so be sure to make your payments on time and feel good knowing you solved your debt issues by being proactive.
The Direct Consolidation Loan Program offers several repayment plans that give you up to 25 years to pay off the debt. The programs are tailored to your income and family size. You can even switch programs if your financial or family situation changes.
Consolidating Private Student Loans The process for consolidating private student loans is focused around your credit score. If your credit score has improved dramatically since graduation, you may be in line for a lower interest rate. Home equity loans are another way to consolidate a lower interest rate.
There also could be a variable interest rate loan that suits your situation. Contact several lenders before making a final decision on consolidating your student loans through a private lender. A federal Direct Consolidation Loan can even rehabilitate your student loans if you are in default. Consolidating private student loans is more complicated. If your score is under , It is unlikely you will qualify for consolidation from private lenders by yourself.
Things get more difficult without a co-signer. Local credit unions usually have softer requirements than traditional lending services. They might be willing take a chance. Maxing-out credit cards tanks a credit score because credit utilization ratio of how much you owe vs.
Wait a couple of months, and then apply for student loan consolidation. Consolidating Defaulted Student Loans Defaulted student loans can still be consolidated under one of the income-driven repayment plans. To enroll in a different repayment plan, you need to make three consecutive on-time payments. Your loans will no longer be in default once they are consolidated into a Direct Consolidation Loan, however, it will remain on your credit report as a negative mark.
As an alternative, you can opt to enter student loan rehabilitation , which will remove defaulted student loans from your credit report. It is unlikely you will find a lender to consolidate private student loans in default. In this case, contact your lender and request repayment assistance. They might be willing to offer forbearance a temporary pause on payments or temporarily adjust your monthly payment. Do this before they send your debt to collections.
The original lender is more likely than a debt collector to work with you. Ready to consolidate your student loans?