How Do I Consolidate My Student Loans?

Student loans have become the bane of many student’s existence, and consolidation is often seen as a panacea to all of them. However, consolidating student debt should not be viewed as a silver bullet solution to all financial woes. In fact, most people who consolidate their debt end up paying more money each month in interest than they would if they had simply paid off their debts at the outset. Also, some services charge fees for their service or may even take out additional hidden fees to collect their payments. Here are a few things to consider before consolidating your student loan debt.

Know what type of loan you have

Before you begin consolidating your loans, it is first necessary to understand their nuances. Depending on the type of loan, the rules governing repayment can vary significantly. If you currently have federal student loans, these have certain guidelines about how much you can borrow and how long you can defer repayment. Your lender will also dictate whether those loans can be consolidated with any other private or government-issued debt.

Consider consolidating only if it makes sense

If you have a lot of consumer debt, such as credit card balances, auto loans, and mortgages, then it may make sense to consolidate your student loans with one of those kinds of debts. But keep in mind that this kind of debt consolidation doesn’t always work well. You may get a lower rate by combining your student loan debt with a secured car loan, for example, but you won’t save a great deal in interest costs. And while your auto loan may now be less expensive, keeping good credit records could mean having to pay higher rates on future loans.

Take time to calculate your monthly payment

Even though student loans are considered high-interest debt, they are still subject to the same laws as any other type of loan. So, just because you’re able to borrow less today, it’s possible you’ll owe more later. Therefore, it’s important to carefully review your monthly payment amount once you’ve settled on which kind of loan you want to consolidate. Once you know what your minimum payment will be, use an online calculator to figure out how much you’d need to pay over the course of 10 years—or whatever period you decide works best for your budget.

Calculate the total cost

Once you know how much you’re going to need to repay each month, add together everything you’d be paying under either scenario (paying your student loan debt separately vs consolidating) and compare that sum to the expected balance after ten years. Most students underestimate how much they will need to pay back, which means that they wind up spending more than they thought. If you find yourself spending more than you expect, think twice before consolidating.

Be aware of potential drawbacks

While consolidation may seem appealing for obvious reasons, there are a number of potential downsides. One obvious downside is that you’ll lose access to any low-interest promotional offers extended by your current lenders. Another is that you’ll miss out on any tax breaks offered to borrowers who consolidate their debts. And while a single loan might be easier to manage, you may find it hard to keep track of different obligations without having a dedicated spot for your finances. Finally, some consolidation programs require you to submit paperwork to several creditors at once. Since some loans are eligible for forgiveness, you may have to disclose your personal information to various companies that could potentially jeopardize your eligibility.

Stay alert to changes

Finally, realize that as soon as you make a change to your loan, it becomes harder to reverse that change down the line. As a result, it’s important to be vigilant about how your loan is working for you. Are you making progress toward repaying your loans? Is your monthly payment manageable? If not, contact your lender immediately. And remember that you don’t necessarily have to consolidate all your loans to benefit! There are plenty of strategies to help you reduce your outstanding debt and improve your financial situation as a whole.

How Do I Consolidate My Student Loans?

I just graduated college last month and am finally able to start paying off my student loans. But now I’m faced with the task of consolidating them.

My question is what exactly does that mean? Is it going to save me money? Should I do it right away? How long will it take to consolidate? And how much will it cost me?

Thank you! 🙂

How Do I Consolidate My Student Loans?

If you want to consolidate student loans, what exactly does that mean? I have seen people use the term interchangeably or confuse consolidation with refinancing. Here is how they work.

Consolidation – consolidating your student loan payments means getting rid of all of your interest rates and payment amounts onto one single, lower monthly amount. You do this by paying off your debts over a longer period of time. Most federal loans offer this option to their borrowers.

Refinancing – Refining your loan involves changing the terms of your original loan. This means that you pay back less money over a shorter period of time, while keeping the same total amount of debt paid back. If you refinance your loans, you may be able to take advantage of lower interest rates. However, if you refinance into a higher-interest rate loan, you may save some money in the long run.

You should consult with your lender to find out if you qualify for either type of loan. If you do not meet the qualifications for consolidation, then you should consider refinancing your loans. Your credit score will play a role in whether you are approved for the lower-interest rate loan or the higher-interest rate loan. You should check your credit score before you apply for any loan.

What Is the Difference between Consolidation & Refinancing?

A consolidation is simply combining multiple different types of loans together into one larger, lump sum. The amount of the consolidation loan is based upon the current balance of all of your loans and how much you owe each lender. If you have a $10,000 balance on your loans, for example, and owe $8,000 to Bank A, $4,000 to Bank B, and $2,000 to Bank C, you would need to borrow a total of $12,000 ($8,000 +$4,000 $12,000). In order to get a consolidated loan, you would go to the bank that holds the largest portion (or highest percentage) of your total debt. In this case, it’s Bank C. So, in our example above, Bank C would combine all three of your debts into one loan, giving you a new balance of $10,000.

A refinancing is essentially just switching lenders. If you’re currently making payments on a loan issued by Bank A, and you decide to switch to a loan issued by Bank B, you would continue to make the same monthly payments to Bank A, but you would send those payments to Bank B instead. When you do this, you actually are still using Bank A’s loan software. There is no difference in the way the loan works, except that you are now making payments to Bank B, rather than Bank A.

Both options have their pros and cons. Consolidations can help you manage your debt load by lowering the number of bills you receive on a monthly basis. By consolidating, you get to choose when you pay off your loans, and you may even benefit from a lower interest rate. On the other hand, refinancing gives you flexibility to change your repayment schedule without having to worry about adding additional fees to your loan.

How Do I Consolidate My Student Loans?

If you’re like many people, you may have student loan debt—and it feels overwhelming. But consolidating those loans can make them easier to manage and reduce interest rates. Here’s how:

Step 1

The first step to consolidating your student loans is submitting your application online. You can find the link on the Federal Student Aid website.

Step 2

You’ll need to provide details about your financial situation, including income (salary or wages), assets, debts, dependents, and any other information necessary to determine eligibility. Then select whether you want to consolidate private and federal loans together or separate them, and create a plan to pay off your debt. Once your application is submitted, you’ll receive a confirmation email. If you don’t receive one right away, check your spam folder.

Step 3

Your loan consolidation may take several months to complete. After your lender receives your payment history, they’ll review it and decide if you qualify for a lower rate.

Step 4

Once approved, you’ll get a letter in the mail notifying you of the lower interest rate and repayment schedule.

Remember that consolidating doesn’t mean your payments won’t go down. Your monthly payments remain the same, just at a lower interest rate.

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If you have questions about consolidating your student loans, visit www.studentaid.gov for help.

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How Do I Consolidate My Student Loans?

Apply for consolidation loans

Consolidating student loan debt is the best way to take out a single payment instead of many different payments over time. You should start looking into consolidating your student loans right away once you graduate college or university since you have until June 30th, 2020 to apply. Once you’ve applied you’ll need to wait for approval, and then begin repaying your loan(s). If approved, you will receive one monthly payment rather than several small payments each month.

You’re going to want to make sure that you only consolidate direct student loans. Credit card companies don’t count towards your total credit score, so you won’t get any benefit from them. You do not want to consolidate private education loans, personal loans, home equity lines of credit, auto loans, or business loans.

Find out what interest rate you qualify for

Once you’ve got a list of lenders that offer competitive rates, compare their loan products. To find out what interest rate you might qualify for, check the lender’s website or call the company directly. Most online calculators will show you how much money you’ll save if you were able to borrow at a lower rate.

Take advantage of federal programs

If you are eligible for the Federal Public Service Loan Forgiveness Program, the U.S. Department of Education will cancel your remaining balance after 10 years of making payments. You must currently be employed full-time in a job that qualifies for public service employment in order to qualify. Other programs, like Income Based Repayment, allow borrowers to pay back less than they would otherwise owe over a period of 15 years.

There are also income-based repayment options now being offered by Sallie Mae, Navient, Citibank, Wells Fargo, and other major student loan providers. These plans allow students to repay a set amount each month without having to worry about paying off the entire debt immediately.

Make extra payments

Make extra payments on top of the minimum amounts required. When you do this, you will build up your savings faster and put yourself further ahead when you eventually enter into repayment. You want to be putting away approximately 20% of your discretionary income each month.

Pay off your student loans early

It may be tempting to ignore your student loans entirely and put them off until later, but it’s worth taking care of them sooner rather than later. Once you start making extra payments, you will notice that your balances go down quicker.

The government offers special deals to help those who don’t make enough money for standard payment plans. These payment plans are called extended repayment plans and let you pay off your loans in 25, 35, or even 40 years. All you need to do is provide proof of financial hardship, and the government will work with you to negotiate an affordable plan.

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