How to Consolidate Student Loans

If you’re juggling multiple student loan repayments that you’re managing (or are expected to be once the payment delay expires) it’s possible that you’re thinking about whether consolidating your debts is the right choice for you. Consolidation is advantageous, but it’s not always the best choice for every person. This is what you should consider.

What is Student Loan Consolidation?

Consolidation is the process of combining several student loans into one loan. In essence, you’re refinancing all of your loans into one installment and also a new timeframe.

Does Consolidating My Student Loans Is the right choice for me?

The decision to consolidate is based on two aspects that include the kind of loan you’ve got, and secondly what you want to achieve with the loan.

First is, are your loans private or federal? Federal student loans are able to be consolidated using Federal Direct Consolidation loan and remain within Federal loan systems.

Private loans are refinanced to create a single private loan. Federal loans can also be combined to create a private loans however, you’ll lose accessibility to benefits offered by the Federal government such as income-driven repayment plans or forgiveness options.

Questions to you ask yourself:

Are you in search of an interest rate that is lower?
Do you wish to reduce your monthly expenses?
Are you planning to utilize one of the plans for payment that are only available to federal loan (income-driven programs for public service or forgiveness of public debt)?

The Benefits and Cons of Consolidating Federal Student Loans

The Pros

The most significant benefit is typically the smaller monthly payment–and only one payment. With fewer bills to contend with every month could help reduce the stress.

In addition, if you choose to use Direct Consolidation Loans you’re still eligible to participate in potential payment based on income as well as forgiveness programmes. In addition, a federal consolidated student loan remains eligible to be eligible for an once-in-a-lifetime debt-relief program that is currently in limbo.

The Cons

You’ll probably have to pay more over the end (unless you request forgiveness) because, even though Direct Consolidation Loan generally reduces your monthly installment however, it extends the repayment time and does not reduce your interest rate. In exchange for a lower monthly payment, you’re still paying for more time and you’ll be paying higher interest rates over the course of time.

Another issue is that if you consolidate all your debts, you might miss certain benefits that are associated with particular loans, for example, the cancellation of the Perkins loan. Certain federal loans may offer interest rate reductions or principal rebates, as well as benefits for cancellation of loans. Fortunately, you don’t have to include all of your federal student loans when you apply for Direct Consolidation loan. If you’re able to benefit from the benefits that are associated with any of your loans, it’s likely that you’ll decide to keep them out of the consolidation.

What Kind of Federal Student Loans can I get?

There are a variety of federal student loans that qualify to be enrolled in the Federal Direct Consolidation Loan program (there’s only one program that is federal).

Here’s a complete list of loans that qualify as per studentaid.gov:

Direct Subsidized Loans
Direct Unsubsidized Loans
Direct Plus Loans (Grad PLUS as well as Parent PLUS)
Subsidized Federal Stafford loans from the Federal Family Education Loan (FFEL) Program
Nonsubsidized and Unsubsidized Federal Stafford (FFEL) Loans
FFEL PLUS loans
Supplemental Student Loans
Federal Perkins Loans
Nursing Student Loans
Nurse Faculty Loans
Medical Education Loans
Healthcare Professions Student Loans
The Loans for Disabled Students
Consolidation of FFEL Loans as well as Direct Consolidation Loans (if you are consolidating loans usually requires you to add a new loan eligible for consolidation)
Federally Insured Student Loans
Guaranteed Student Loans
National Direct Student Loans
National Defense Student Loans
Parent Student Loans for Undergraduate Students
Auxiliary Loans for Students to Help

How does Consolidation of Federal Student Loans Benefit You?

The first step is to ensure that you’re qualified. Generallyspeaking, you can consolidate your loans as when you’re no more an undergraduate student (meaning that you’ve graduated or dropped below half-time enrollment, or have withdrawn out of college). The loan should be within the grace or payment time.

In order to consolidate Federal loans and create a brand new federal credit, you’ll have to apply for Direct Consolidation loan. You are able to apply on the internet or via mail (find the instructions for the application on paper at the hyperlink). There is no cost and no credit score requirements for consolidating federal student loans. However, be cautious of anyone trying to charge you fees.

When you fill out the application, you’ll have to decide the types of loans you’d like include and the repayment plan you’d like to utilize. If you decide to go with an income-based repayment program you’ll need to fill out the additional application. You can eliminate any loans that you’d lose benefits on like Perkins loans.

There is a possibility to include defaulted loans however this requires certain additional steps. It is usually required that you pay three consecutive monthly installments before you can consolidate or agree to an income-driven repayment program in conjunction with your consolidation loan.

When you have submitted your application and a loan servicer handles the consolidation process on your behalf as per studentaid.gov. Once you’ve been approved, you’ll be granted an entirely new loan that comes with a new monthly installment.

Be aware that you are not able to lower the interest rate you pay when you consolidate federal student loans. The new rate would be the weighted mean of your prior rates which is then rounded up to the 1/8th of a percentage. However, you can reduce the amount you pay. This is the primary reason why people choose to consolidate.

Once you’ve been accepted and your new loan is in force You should make timely payments on the original loans.

What about refinancing to a Private Loan?

If you’re considering refinancing your federal loans into a private then you’ll have to find a qualified private lender. Refinances like these were not widespread until recently however, there are numerous lenders, mostly online, that specialize in refinancing student loans like SoFi as well as Earnest. Be aware that you will aren’t eligible for federal benefits such as the public service loan forgiveness, Teachers Loan Forgiveness, as well as other income-driven repayment plans.

If you’re in the market for private loans that you would like to consolidate, reputable private lenders can aid you with this as well. Being able to demonstrate a solid credit history can help you, and you’ll need to show a steady sources of revenue. If you refinance privately and not the federal consolidating option, you could get an interest rate that is more favorable (dependent of your credit rating, as well as other aspects). The rates for interest vary between 3.99% to 10%, and the more favorable your credit score is, the more favorable your rates. Since there are many lenders, it is possible to shop for rates if you choose to do this.

Red Flags to Watch For

There are a few things to keep an eye out for as you progress:

Cost Federal consolidation. There is no reason to charge you for federal consolidation since it is completely free.
Interest rates that look like they’re too great to be real. Check out current rates and shop for a better deal.
The high cost. Also, look for a bargain. Is this normal?
The types of loans. Choose lenders with positive reviews from their customers and a high rating of the Better Business Bureau.

Keep in mind, however, that If you’ve got federal loans and you’re looking for to pay less, you should check to determine if you’re eligible for an income-based plan first. Consolidation can cost you more over the long term Make sure that you’ve exhausted alternatives first.