Even thinking about how you are going to pay off your student loan debt can be overwhelming. You are not alone, over 40 million former students have loan debt. The total amount of student loan debt in America rises by 3000 dollars every second. Many former college students are uninformed about how to or are unable to pay back their debt. Luckily, there are a few ways that can lighten the burden of your debt and help you pay it off. Through the use of programs like Student Loan Consolidation or Refinancing your debt can start to disappear at a rate that works for you without going into default.
What is Student Loan Consolidation?
Often times borrowers have more than one loan. So, when you are making payments you are making payments on many loans, not just one. Through the Direct Consolidation Loan program, you can combine your loans (depending on the type) into one loan. This makes your payments smaller and easier to manage.
What is Student Loan Refinancing?
Student loan refinancing is a similar concept to student loan consolidation except that it is done through a private lender. This is a better decision for borrowers who are generating more income than when they started college. When you sell your loans to the private lenders, you also give up the federal programs that go along with them. This makes it harder to pause your loan payments and causes you to lose your eligibility for income-driven plans.
How to Consolidate your Student Loans
1. Separate your Federal and Private Student Loans
Private student loans and federal student loans have separate consolidation procedures. By separating and being aware of which kinds of loans you have, you will be able to identify what your consolidation options are.
If your loans are federal
You most likely qualify for a government program to consolidate these loans. The Federal Direct Consolidation Loan program will allow you to have only one bill each month. You will also be able to apply for Income-Driven Repayment, which you cannot get from most private lenders. Keep in mind, the interest rate from these consolidated loans is weighted. This means that your interest rate is rounded up to the nearest ⅛ of a 1%, so you may slightly raise the overall amount you pay in interest. If you are consolidating loans with varying interest rates, the interest rate will always be in between.
If your loans are private
You will have to go the refinancing route. Student loan refinancing is done through private lenders. Each lender’s policy is different, so be sure to explore your options before you pick the one that works the best for your situation.
2. Verify your student loan consolidation eligibility
Usually, the only qualification for a federal student loan consolidation program is that your loans are federal loans and not private (or have been consolidated previously by a private lender). In order to get the lowest monthly payment possible in this situation it is helpful to consult a student loan specialist.
If you have private student loans, the basic qualifications for refinancing are:
- Good credit score and standing (above 660)
- Balanced debt-to-income ratio (lower than 45%)
- Proof of stable income (above $25k/year) likely in the form of pay stubs
3. Begin the Application Process
Applying for the Federal Student Loan Consolidation program can be done electronically or through a paper application process. The electronic application usually takes around a half an hour to fill out and requires you to have a verified FSA ID, basic contact information and income verification. Application requirements for student loan refinancing vary between lenders.
How to Pick The Best Student Loan Servicer
Once you’ve decided that student loan refinancing is right for you, it’s time to make another tough decision: which servicer do you go through? There are a lot of different companies that specialize in student loan refinancing, so how do you know which one works best for your loans? Here are some things to consider when analyzing a loan service company:
- Interest rate
- Are they fixed or variable interest rates?
- Is there an option to postpone your payments?
- Reviews left online by current or past borrowers
- What are features they have in their plans that others do not?
Private Student Loan Lenders
There are a lot of private loan lenders to choose from, and many different reasons to consider when selecting one. The following is a list of some of the top lenders in the industry.
Don’t keep putting off finding a way out of debt. By utilizing either student loan consolidation or refinancing programs you will get out of debt sooner and more easily. Through educating yourself and finding out which program or lender is right for you, a brighter financial future will emerge. If you are confused about how to start strategizing, student debt relief offers support programs with loan experts that will help you plan your debt repayment.
Federal Student Loan Consolidation FAQ
What types of federal student loans are eligible?
All federal student loans are eligible for a consolidation, but not all repayment plans are available for the consolidation.
When can my loans be consolidated?
You are typically able to consolidate after you graduate, leave school, or fall below half-time enrollment.
Will my interest rate change?
Federal consolidation does not lower your interest rate, it simply takes a weighted-average rate of the loans you already have. Because federal consolidation doesn’t change your rate, if you are a highly creditworthy borrower, you may want to consider private consolidation or refinancing.
Will federal consolidation change my repayment options?
Federal student loan consolidation often allows you to extend your repayment term based on your consolidated loan balance. Borrowers are often able to extend their term from 10 to up to 30 years. This may lower your monthly payment (but may also increase the total amount you pay over the longer term).
When will I begin repayment on my consolidated loan?
Repayment on a consolidated loan begins immediately, with most borrowers receiving their first bill within 60 days of approval and disbursement of their newly consolidated loan.
Can I still take advantage of my grace period?
Yes. If any of your current student loans are still within their grace period, you can delay repayment on your newly consolidated loan until your grace period end-date. You can do this by asking the loan servicer of your consolidated loan to delay processing your application until toward the end of your current grace period.
What if I’ve already consolidated my federal student loans?
In this case, you cannot re-consolidate using the Direct Loan program unless you have added another federal student loan to your total loans since then. You can refinance or consolidate your federal loans into private loans even if you’ve already gone through a federal consolidation.
Can I consolidate my student loans if I’m currently in default?
If the loans are Federal, yes, as long as you don’t have a wage garnishment against you. Consolidating your defaulted student loans and enrolling in an Income-Based Repayment plan can be a great way to get a “fresh start” and make your student loan situation much more manageable. Those that have a wage garnishment must first go through rehabilitation before being eligible to consolidate.
By consolidating, can I take advantage of Income-Driven and Forgiveness Plans if I’m eligible?
Absolutely! This is often one of the best reasons to consolidate your federal student loans. Keep in mind though, you are not automatically enrolled into the income-driven plans. You must choose this option when consolidating (or later on) to take advantage of them. Further, not all federal loans are eligible to enroll in all income-driven plans. For example, Parent Plus loans are only eligible for Income-Contingent Repayment (not IBR, PAYE, or REPAYE programs).
Is there an application fee to apply?
There is no application fee for federal student loan consolidation.
Can I apply for federal consolidation online?
Yes, you can apply directly online here.
How can I learn more before I apply?
You can learn more about the federal consolidation process and your options through the Department of Education as well as our federal student loan consolidation page. You can also call 1-844-669-4407 to talk to a company focused on assisting borrowers.
Private Student Loan Consolidation FAQ
Am I eligible for private student loan consolidation?
Because private institutions do these, there is no automatic eligibility. Generally, you will be evaluated based on your creditworthiness. If you are behind on your loans, it’s unlikely that you will be eligible.
When can my loans be consolidated into a private loan?
You are typically able to consolidate after you graduate, leave school, or fall below half-time enrollment.
Will this lower my interest rate?
This depends, on your current rate and your creditworthiness. If you have a high rate and a good credit score, you may have a good shot at eligibility. LendKey and CommonBond are just a few of the sites that can help you.
How much does private student loan consolidation/refinancing cost?
It varies depending on which private lender you decide to work with. Generally there are no origination fees or application fees.
If I’m struggling with my private loans, are there forgiveness programs or other ways to reduce my payment?
There are currently no forgiveness programs for private loans, but some law firms specialize in private student loan relief. Student Debt Relief may be able to help you identify those firms that specialize in this area. Click here to learn more about those options or call us for more information at 1-844-669-4407.
