Updated: Dec 03, 2020
How I graduated college without owing a cent
While loans are a viable option for paying for college, there are ways to avoid student loan debt. Discover Student Loans shares how you can graduate without owing a cent.
Managing your finances can feel a lot like a juggling act. And when you’ve got multiple loans from various lenders, with different payment due dates and interest rates, it can feel like it’s only a matter of time before you drop the ball. Consolidating your loans can help you better manage them, so you can work towards paying them off. And in some cases, you may even be able to lower your interest rate or your monthly payment. Sound appealing? Good. Here, you’ll find the answers to your consolidation questions.
Fundamentally, a consolidation loan is a way to combine multiple loans into one, new loan. That new loan pays off your old ones, and you’re left with a single loan for the total amount of your unpaid debt, with one monthly payment. The details of student loan consolidation vary based on the kind of loans you have (federal, private, or a mix) and the type of consolidation loan you get (again, federal or private).
If you have multiple federal student loans, you can apply for a Direct Consolidation Loan, which is a program that allows you to combine these loans into one. The interest rate on this new loan will be a weighted average of the old loans, and you’ll have the option to repay your loan for a longer period of time (up to 30 years), which will lower your monthly payments.
There are some downsides, however. When you extend your loan repayment, you end up paying more in interest over time. Any outstanding interest on your existing loans will get capitalized, which means that it’ll get added to the principal, or original amount of the loan. In other words, future interest charged on your new loan will be based on a higher principal amount. Additionally, you may lose some benefits to your existing loans, such as progress towards student loan forgiveness.
A private consolidation or refinance loan is a loan from a financial institution like a bank or credit union, and it typically allows you to combine federal and private loans into one. Unlike the Direct Consolidation Loan, a private consolidation or refinance loan may be able to offer you a lower rate than you’re currently paying—which would lower your monthly payment. It is important to note that if you consolidate federal loans into a private consolidation loan, you’ll lose benefits associated with those loans.
You can apply for a Direct Consolidation Loan online at studentaid.gov. It’ll take about 30 minutes, and you’ll need your FSA ID, some personal information, and financial information (much of which you can find by logging in to your federal education loan account).
For a private consolidation or refinancing loan, you’ll have to choose a lender and then follow that organization’s instructions. A Discover Private Consolidation Loan application takes about 15 minutes, and you can do it online or over the phone. You’ll be asked to choose the type of interest rate you want (variable or fixed), verify the loans you want to consolidate, and then sign and accept your loans (all online). Get started and apply for a Discover Private Consolidation Loan today.
Now that you have a single payment due each month (and perhaps even a lower monthly minimum to pay), the repayment process can be easier to manage. In order to stay on top of your finances, work out a rough budget for yourself that includes your new monthly. If you can, work a slightly higher number into your budget and pay off more than the minimum each month, or throw some extra money towards your loan when you have it (like when you get a tax refund), as it can get you to the finish line faster. Either way, a life free of student loan debt is on the horizon.