Student loan consolidation is one of the leading causes of borrower issues. If you consolidate your loans incorrectly, you could lose access to student loan forgiveness programs, repayment programs, or even your past loan forgiveness history!
Consolidating debt with a personal loan can be a good idea if you can get a new loan with favorable terms and a lower interest rate than current debt. Whether you can qualify for a consolidation loan depends on your credit scores, income and other financial factors.
Student loans by themselves cannot prevent you from getting a mortgage. The effect of the student loans on your debt-to-income ratio is the key deciding factor. This includes your student loan payments, car payments, credit card, and personal loan payments.
When does it make sense to consolidate student loans?
- You want to lower your monthly payment.
- You don't qualify for IDR plans or loan forgiveness.
- You want a fixed interest rate.
- You want to save money over the length of your loan.
- You want a fixed interest rate.
- You want to reduce your monthly payment.
To consolidate loans, you'll first have to complete the direct consolidation loan application available on the Department of Education website. If you apply online, the entire application will need to be completed in one sitting, and most people finish in less than 30 minutes, according to the department.
Best federal student loan servicers — ranked
- OSLA.
- Granite State.
- HESC / EdFinancial Services.
- Cornerstone.
- Nelnet.
- MOHELA.
- FedLoan Servicing (PHEAA) FedLoan Servicing currently services the largest percentage of federal student loans at 27%.
- Navient. No surprise here.
It's probably not surprising that among student borrowers who now make more money or have attained higher degrees, even more support taking student loans. Those who earn $100,000 a year or more think loans were “worth it” by 80 points – 79% to 19%. Debt and no degree is probably not worth it.
Consolidating federal student loans may be a good strategy to lower monthly payments or to get out of default, but it is not always a good idea. Direct consolidation loans are now the only type of federal student consolidation loan. Consolidation loan borrowers should not be charged origination fees.
You — or your co-signer — generally need a credit score at least in the high 600s to qualify for student loan refinancing. Lenders' minimum credit score requirements range from 650 to 680.
Once you've decided to consolidate your debt, there are several necessary steps you need to take so that it's ultimately beneficial for you.
- Check Your Credit Reports and Get Your Credit Scores.
- Take an Inventory of Your Debt.
- Research Debt Consolidation Options.
- Apply for a Consolidation Loan.
- Consolidate Your Debt.
Average monthly payments on $47,000 per year income
At this income rate, your monthly payment would be between $245 and $304 per month. The total interest paid over the course of the loan would be $7,141, bringing the total amount paid to $37,141.While there are some real advantages to private student loans, they're balanced by some definite drawbacks.
- Ineligible for income-driven repayment or federal forgiveness.
- Interest rates might be variable.
- No federal subsidy.
- A cosigner may be necessary.
- Private debt follows you to the grave.
The benefits of student loan consolidation include easier debt management and potentially a lower monthly payment. If you have multiple student loans, consolidating them into a single loan with one monthly bill can help you cut through the confusion of repayment.
Federal loan consolidation can be beneficial if you need to do it to access a repayment option. But consolidating your student loans can also cause you to pay more interest over time. Federal Direct Consolidation loan term lengths range from 10 to 30 years, depending on your loan balance.
Consolidation is the process of obtaining a single new loan to pay off your existing loans. Rehabilitation is a program where you make nine payments that are reasonable and affordable to you, regardless of what your actual student loan payment may have been before you defaulted.
When you consolidate student loans — such as with a Direct Consolidation Loan — you group multiple loans into one. You may refinance to get a loan with a shorter or longer repayment term or lower interest rate. As a result, refinancing may save you more money over the life of your student loans.
The bottom line is—if you have multiple student loans, a good paying job, and decent credit (or a cosigner), refinancing your loans is probably the right answer. However, if you rely on one of the federal programs, such as income-based repayment, it's best to stick with that until you're in a stable financial place.
How to consolidate federal student loans
- Select loans. Enter which loans you do — and do not — want to consolidate.
- Choose a repayment plan. You can either get a repayment timeline based on your loan balance or pick one that ties payments to income.
- Read the terms before submitting the form online.
Pay Off Your Student Loans Faster With These 7 Tips
- Turn windfalls into extra payments. One of the best ways to pay down your student loan debt fast is by making more than the minimum payments.
- Split your payments in two.
- Sign up for auto-pay.
- Refinance.
- Join a company that offers repayment assistance.
- Volunteer.
- Pay according to your personality.
The biggest impact consolidating your student loans can have on your credit score is fairly basic: If you're unable to make your monthly payments, obtaining a lower payment through a loan consolidation can help. Consistently making on-time payments is the best thing you can do to positively affect your credit score.
With all the
student loan refinancing
companies we're going to discuss, you can
refinance and/or
consolidate.
The College Investor does not include all student loan companies or all student loan offers available in the marketplace.
- Citizens Bank.
- CommonBond.
- Earnest.
- ELFI.
- Figure.
- First Republic.
- Laurel Road.
- LendKey.
To receive loan forgiveness under this program, you must be a full-time employee (at least 30 hours per week) in public service job and make 10 years of on-time monthly payments (120) after consolidating your federal loans in a qualified repayment program.
Yes, student loan consolidation for borrowers with bad credit is possible. Refinancing student loans with bad credit is possible, but if you're struggling with education debt, you'll want to consider other options as well. Federal loan consolidation could help, as well as income-driven repayment plans.
If you have multiple student loans you may be able to combine them into one loan with a fixed interest rate based on the average of the interest rates on the loans being consolidated. A Direct Consolidation Loan allows you to consolidate multiple federal education loans into one loan at no cost to you.
Cons of Student Loan Consolidation
- Loss of benefits: Depending on your loans, you may lose certain borrower benefits if you combine your loans.
- Potentially higher rates: Depending on your current interest rates and loan amounts, you can actually end up paying higher interest rates and increasing the overall amount you owe.
You can only consolidate student loans one time. If interest rates fall after you consolidate, tough break! You're stuck with the interest rates you agreed to during consolidation.
