Having trouble making student loan payments or keeping all of your loans in order? Perhaps you're juggling multiple payments across several loan servicers. Consolidating your student loans could help you stay organized.
When you consolidate your loans, the lender pays off your existing loans and issues you a new loan for the combined amount. As a result, you'll have fewer loans to keep track of and fewer monthly payments to make. Although loan consolidation may not save you money, it could still be worth considering for several reasons.
If you do it yourself, consolidating your federal student loans is free. The Department of Education (ED) says that the online application process takes most people less than 30 minutes to complete. However, some people hire a company or student loan expert to guide them through the process.
You can apply for federal loan consolidation online at StudentLoans.gov or mail in a paper application. Your eligibility for consolidating federal loans is based on the types of federal loans you have, not your income or credit.
Many borrowers have more than one student loan to keep track of each month. Consolidating or refinancing student loans (federal or private) could make it easier to stay organized, potentially saving you time and helping you avoid mistakenly missing a payment.
The consolidation process itself could take several weeks or months. You should continue making loan payments until the servicer you're working with says your original loans are paid off and disburses your new consolidation loan.
You'll choose the repayment plan for your Direct Consolidation Loan when you apply for consolidation. Switching to an income-driven plan or the Extended Repayment Plan could be a good option to reduce your monthly payment amount. You can always change your repayment plan in the future.
When you refinance your student loans into a private consolidation loan, you may have the option to pick the repayment term for your new loan. For example, you could choose between a 5-year loan or a 20-year loan and the corresponding monthly payments.
However, keep in mind that lengthening your original loan term with consolidation will increase the overall cost of your loan.
Federal and private student loans have limitations on how long they can be placed in forbearance or deferment - temporary periods during which you don't have to make loan payments. Because consolidation results in a new loan, the forbearance and deferment limits are reset by the process. This may be useful if you've had trouble making payments in the past and want to ensure that you have these options in the future. However, placing your loan in a forbearance or deferment will increase the overall cost of your loan.
When you consolidate your federal loans, you'll choose a new loan servicer. Currently, there are four servicers for Direct Consolidation Loans: Navient, Nelnet, FedLoan Servicing (PHEAA) and Great Lakes. If you're working toward or considering the Public Service Loan Forgiveness (PSLF) program, FedLoan Servicing may be beneficial since it helps administer the program.
For private loan consolidation, you can choose the lender that best fits your circumstances based on the loan terms you were approved for and the services it offers. If you are changing from your current lender, then your servicer will also likely change.
A Direct Consolidation Loan has the weighted interest rate of the federal loans you combined. This means that unless you change your repayment plan, you'll owe roughly the same amount each month and pay about the same amount in interest over the lifetime of the loan.
The interest rate on a private consolidation loan will be fixed or variable depending on what you choose, and it could be lower than the original interest rates on your private or federal loans.
You may be able to consolidate your private and federal loans together with a private lender who offers combined consolidation. Similar to consolidating your private loans, your new loan's interest rate will depend on several factors, including your credit history and choice of a fixed or variable rate.
A creditworthy cosigner could increase your chances of approval and help you secure a lower interest rate. If you're eligible for the loan on your own, you could also use consolidation to release a cosigner from your existing student loans.
Consolidating your federal student loans into a private loan could save you money by lowering your interest rate. However, your new private loan won't have the same benefits of a federal student loan, such as eligibility for federal repayment plans and forgiveness programs.