How to Consolidate Student Loans
Why You Should Consolidate Student Loans
With the price of higher education on the rise, students are taking on more student loan debt to pay tuition. However a loan from a single lender may not be enough to cover the full cost. In this scenario, most students take out multiple loans from different lending institutions. When you consolidate student loans into one new loan it simplifies your personal finances and also comes with some additional benefits.
Consolidate Student Loans vs. Refinance Student Loans
Often used interchangeably, consolidating and refinancing student loans refer to different things. If you consolidate student loans, you are taking out a new loan in the amount of all of your existing loans combined. Your original interest rates carry over so you’ll end up paying the same amount over the course of the loan. This new loan is used to pay off the old loans leaving you with just one bill to worry about every month.
When refinancing student loans, you take out a new loan to pay off the original loans but with new loan terms including an interest rate and payback period. For many, this option makes more sense because the interest rate you qualify for now may be lower than that of your original loans and you can reduce the payback period to avoid paying as much interest over time.
Benefits of Consolidating Student Loans
Having numerous loans with different lenders can be a headache to manage. Making sure you make every payment on time, every month, is not only important to getting out of debt but it has a major impact on your credit score. Your credit score is used to determine credit worthiness down the road when you need it most such as buying a car or home. Consolidating your loans will leave you with one bill to stay on top of.
Additionally, there’s a good chance you used a cosigner on your original loans. The combined credit score of yourself and cosigner likely improved your chances of being approved for a loan and with a better interest rate. However having a cosigner on your loan leaves them liable for your loan as well. When you consolidate student loans, a cosigner isn’t necessary, assuming you can get approved for the new loan by yourself. This essentially frees the cosigner of any liability for your debt.
Drawbacks of Consolidating Student Loans
It’s important to be aware of the types of student loans you have. Federal student loans come with some perks such as loan forgiveness for certain career paths. If you have federal loans, make sure you won’t use the benefits provided by them because they’d be lost if you consolidate.
How to Consolidate Student Loans
Federal Student Loan Consolidation
Federal loans are typically consolidated through the Direct Loan Consolidation Program provided by the U.S. Department of Education.
Before June 2014, federal student loans could not be consolidated by private lenders, but due to recent policy changes, some private lenders now also accept federal loans. LendKey consolidates and refinances federal and private student loans.
Private Student Loan Consolidation
Private student loans can be consolidated through banks and credit unions. You should also consider refinancing as you might be eligible for a better interest rate, saving you money.
Private and Federal Student Loan Consolidation
You can consolidate both your federal and private student loans together with a private lender such as a bank or credit union. In doing so, you’d lose your federal student loan benefits, so be sure you won’t use them before consolidating. You may also be eligible for better loan terms if you refinance. You’d end up with one bill and can save money over the course of the loan.
Refinance your student loans today with one of 265+ local banks and credit unions in LendKey’s network.