If you’re facing the challenge of repaying student loans, you may be considering loan consolidation. And if you’re like many other college grads, you likely have a mixture of private and federal loans. You may be aware that you can consolidate your federal private loans with a Direct Consolidation Loan. But can you consolidate private student loans?
Good news: you can consolidate private student loans. There are multiple reasons why you might want to combine your private student loans, from simplifying repayment to saving money. In this article, we’ll go over all of the ins and outs of private student loan consolidation.
Top Private Loan Consolidation Lenders
If you’re ready to consolidate your private student loans, the lenders below are some of your top options.
Visit the links to get a better idea of what individual lenders have to offer in the way of private student loan consolidation.
| Lender | Variable Rates (APR) | Fixed Rates (APR) | |
|---|---|---|---|
|
1.99% - 8.56% |
2.95% - 8.77% |
Learn More |
|
1.74% - 5.64% |
2.44% - 5.79% |
Learn More |
|
2.39% - 6.01% |
2.79% - 6.69% |
Learn More |
|
2.43% - 7.84% |
3.48% - 7.03% |
Learn More |
|
2.56% - 6.87% |
2.59% - 6.74% |
Learn More |
|
3.24% - 5.54% |
3.34% - 5.69% |
Learn More |
Consolidating vs. Refinancing
In the student loan world, you’ll hear the words “consolidate” and “refinance” thrown around quite a bit. Often, the words are used interchangeably. But, while consolidation and refinancing work hand-in-hand, they involve different processes and offer different results.
It’s important to know whether you’re interested in refinancing your private student loans or whether you just want to consolidate.
- Debt refinancing has the goal of restructuring an existing debt by replacing it with a more favorable debt agreement. The new debt will have better interest rates and terms, which will save you money. Refinancing can—but doesn’t always—include consolidation. You can refinance a single student loan without refinancing the rest.
- Debt consolidation—including student loan consolidation—turns multiple loan or credit accounts into a single debt account. Instead of issuing payments to various lenders and creditors every month, you’ll make one bulk payment to a single lender. Consolidation aims to save you money by avoiding unnecessary fees, and to make debt management more accessible.
Below, we’ll be talking about private student loan consolidation. To learn about loan refinancing, click here. Keep in mind that private loan consolidation is often a result of refinancing and vice-versa. If you consolidate your loans, you may end up refinancing the loans, as well.
How to Consolidate Your Private Student Loans
So, how can you consolidate private student loans? You can’t consolidate your private student loans with a Direct Consolidation Loan from the federal government. Instead, you have to work with a private lender who is willing to consolidate your loans. Here is what you need to know.
How Does It Work?
Debt consolidation is a common service offered by many lenders, for student loans and many other type of debt. The primary type of debt consolidation is a consolidation loan.
With a consolidation loan, you essentially take out a large loan—one that’s equal to your total outstanding debts.
For example: you have a $5,000 private student loan from Lender A, and a $6,000 private student loan from Lender B. You could take out an $11,000 consolidation loan from Lender C. You use the new consolidation loan to pay off your old loans. Now, you’re only making one monthly payment.
Different types of lenders issue consolidation loans, including brick-and-mortar banks and online lending services. You can even use a home equity loan if you own a house.
Understanding Your Private Student Loans
Even though you might be leaving them behind soon, your current lenders play an essential role in consolidating your private student loans. The first step in the consolidation process is making sure you understand your obligations to those lenders, and what you’ll need to do to transfer your debts elsewhere.
Examine your loan agreement for clauses like prepayment penalties. If a loan has a prepayment penalty, you might be charged a fee in the process of transferring that debt to a new lender. You also need to find out exactly how much you have left to pay off on each of your loans, including any interest that has accrued.
If you want to get the most accurate information before moving forward, reach out to your lender or loan servicer and ask about loan consolidation. Let them know you’re thinking of consolidating your student loans, and ask whether you’ll face any fees as a result. Your current lenders may even offer competitive consolidation loans as a way to keep you around.
Choosing a Consolidation Lender
Lenders have different requirements when it comes to loan consolidation. Some will require you to borrow a minimum amount, while others may not. The credit requirements will also differ from lender to lender. You may qualify for better terms with one lender than with another but have to borrow a higher amount to get started.
The right lender for you will depend on your debt and what you want to do with it. Try the lenders we’ve linked above, and check to see what consolidation options they have. When in doubt, the best option is to contact a lender by phone and talk to a person directly about consolidating your loans.
Starting the Consolidation Process
To consolidate your private student loans, you’ll need to apply for a loan with the lender you choose. The process will be much the same as applying for a new student loan.
When you start the application process (probably online), you’ll need to have handy the amount you want to borrow. This amount should be equal to the amount you have outstanding with other lenders. If you’re going to consolidate all of your private student loans together, enter the total amount of your private student loan debt. If you only want to consolidate a couple of your loans into the new loan, only enter the total of those loans.
Don’t take out a larger consolidation loan than you need to pay off your outstanding student loan debt. Doing so will leave you with more debt than you had initially, which will counteract any of the benefits you’d receive from consolidating.
When to Consider Consolidating
When can you consolidate private student loans? You can consolidate your private student loans any time you’d like. But the best times to consider consolidating your student loans are:
- Right after you graduate from college, and you find that keeping track of your payments is overwhelming. Consolidating your loans as soon as you’re out of school can make the whole process of repayment easier from the start.
- A few years after graduation, when you’ve established yourself in a career and improved your credit score. If your credit score has increased just 50 to 100 points, you can refinance your loans at the same time you consolidate and get much better terms.
Additionally, you should consider student loan consolidation only if you’re up-to-date and making on-time payments to your current lender(s).
Benefits of Private Student Loan Consolidation
If you’re not sure if private student loan consolidation is the right choice, consider these benefits:
- You can save money.
Consolidation doesn’t always mean refinancing. You can consolidate multiple private loans together and still have the same average interest rate that you had before. However, you’ll generally save money when you consolidate because you’ll be dealing with fewer lenders. Fewer lenders means fewer fees, and fewer late-payment penalties resulting from a complicated payment schedule.
- You can extend your loan term.
When you consolidate your private student loans, you’ll get to choose the length of your repayment term. You could choose a term that’s longer than the ones you have now, which will lower your total monthly loan payment. Keep in mind that paying less each month means you’ll accrue more interest in the long-run.
- You can pay off your debt faster.
Alternatively, you can more easily make larger payments each month and pay off your debt more quickly. While your current lenders may allow you to make larger monthly payments, too, doing so with a single consolidation loan is much less complicated.
- You can make repayment easy.
Similarly, the entire repayment process becomes easier when you’re only making payments to one lender. You won’t have to worry that you’ve left one out and started racking up late fees. You can simply enroll in autopay with your new consolidation lender and let the process happen in the background.
- It’s often free.
Consolidating your loans can be completely free. This depends on your current lenders (whether or not they have prepayment penalties) and your new lender (whether or not they charge an origination fee).
- You can (possibly) release cosigners.
College students who take out private loans often need cosigners to do so. If you have cosigners on your private student loans, consolidating may allow you to release them from their liability. This will depend on your new lender, as well as your income and creditworthiness.
Drawbacks of Private Student Loan Consolidation
You can consolidate private student loans, but should you? If you’re still deciding, consider the following drawbacks in addition to the benefits listed above:
- You’ll pay more if you extend your loan terms.
Consolidation often results in lower monthly payments, as mentioned above. However, lower monthly payments lead to more interest accrual in the long-run, which means you’ll pay more overall.
- There may be an origination fee.
Depending on the lender you choose, you may have to pay an origination fee to take out a consolidation loan. You can avoid this by choosing a lender who doesn’t charge an origination fee for consolidation loans.
- Your credit may take a hit at first.
When you apply for a new loan, the lender might perform a hard inquiry on your credit. This type of credit check can lower your credit score by a few points. Additionally, your credit benefits from a long history of on-time payments to one debt account, such as your private student loan lenders. When you close those accounts and open a brand-new one with no history of on-time payments, the lower average account age could reduce your credit temporarily.
What About Federal Student Loan Consolidation?
Federal student loans have their own loan consolidation option: Direct Consolidation Loans. You can also consolidate your federal loans with a private loan, but you’ll lose your federal loan benefits. That means you won’t qualify for programs like Income-Driven Repayment or loan forgiveness.
To learn more about federal loan consolidation, and to learn more about loan refinancing, click here.
Can You Consolidate Private Student Loans: FAQs
Is it a good idea to consolidate private student loans?
If you want to make one easy payment each month on your student debt, consolidation can be an excellent choice. If your goal for consolidation is to pay less each month, you’ll want to remember that you’ll end up paying more in interest overall.
Can you consolidate private student loans and federal student loans together?
Yes, you can consolidate private and federal student loans together with a private consolidation loan. You cannot consolidate private and federal loans together with a Direct Consolidation Loan, which only applies to federal loans. You should only consolidate your federal loans with a private loan after careful consideration, since you will lose eligibility for beneficial government programs.
Can you get private student loans forgiven?
Private loans do not qualify for the government’s student loan forgiveness programs. However, some private lenders will consider discharging a debt balance in the event of permanent disability or death.
Is there a downside to consolidating private student loans?
The primary downside of consolidating your private student loans is that it can result in your paying more money in the long-term. If you decide to consolidate but continue paying the same amount each month that you were paying in total before, you can avoid this pitfall.
Does student loan consolidation hurt your credit?
When you consolidate your private student loans, your credit score could actually improve in the long-term. However, you should be prepared for it to take a small hit in the short-term. If the lender performs a hard inquiry, your score will lower a few points. Additionally, transferring old debt to a new one will lower your average credit age, which will drop your score slightly for a little while.
