Student Loan Consolidation
What is Student Loan Consolidation?
Student loan consolidation is combining multiple loans into a single, new loan. When students are borrowing money to pursue a higher education, they often need to borrow from multiple lenders to cover all the expenses of college, which includes tuition, housing, and books. By the time graduation rolls around, it’s not uncommon to make student loan payments to multiple lenders!
Having multiple lenders, whether federal or private, means you need to be on top of paying your bills every month – otherwise it could hurt your credit score. Having a low credit score can negatively impact future opportunities, such as buying a car or home and even getting a job.
Multiple student loan bills can quickly become a burden between the everyday tasks of life and responsibilities of going to school. A student loan consolidation will simplify your finances since you will only need to keep track of a single student loan bill each month. Keep in mind that with a student loan consolidation, you are not saving any money since you are just combining all your student debts into one.
Student loan consolidation is not the same as student loan refinancing
Although the terms are often used interchangeably, they are not the same thing. Student loan consolidation and refinancing both result in a single monthly bill, however, student loan refinancing could result in significant savings.
Student loan consolidation averages the interest between all of your loans. In the end, you’ll pay the same amount in total that you would have before consolidation. When you refinance your student loans, you are getting a new interest rate and loan term. This may reduce your monthly payment and cost of the entire loan with a lower interest rate or a shorter payback term.
Federal student loan consolidation
Federal student loan consolidation is usually done through a Direct Consolidation Loan which is offered by the U.S. Department of Education. Some private lenders also consolidate federal student loans, however, you would be losing the benefits of your federal loans in the process.
Private student loan consolidation
Private student loan consolidation is available through private lenders like banks and credit unions. However, you should consider also refinancing your loans since you could be getting a better interest rate, better loan term and may also be able to release a cosigner from the loan.
Consolidating federal student loans with private student loans
You can consolidate both your federal and private student loans into one new loan. This process is done through a private lender so in doing so you’d no longer be eligible for the benefits federal student loans provide. Make sure you don’t plan on taking advantage of these benefits before consolidating your federal loans with private student loans.
Should I consolidate my student loans?
Student loan consolidation makes the most sense if you have only private student loans. Remember, while consolidating your student loans will make managing your student loan debt easier, you are not saving any money on the life of the loan. You should also consider refinancing, which can save you thousands in the life of a loan and may also have a cosigner release available. If you have federal student loans, consolidation may make sense only if you do not intend to use the benefits provided with federal student loans. You can learn more about the pros and cons of federal and private student loan consolidation.
Where can I consolidate my student loans?
Federal student loan consolidation can be through the U.S. Department of Education. Private student loans are consolidated or refinanced through private lending institutions such as banks and credit unions. See how much you could be saving by refinancing your student loans.