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How to consolidate your student loans

How to consolidate your student loans

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There are two types of student loan consolidation: federal and private. Private consolidation is often referred to as refinancing. These processes are often confusing, but they are very different. Here’s how:

  • Federal student loan consolidation combines several federal loans into one federal loan through the Department of Education. You may need to consolidate to qualify for some federal loan repayment programs, but federal consolidation will not lower your interest rate. It can reduce your payments by extending them.
  • Student loan refinancing, also known as private student loan consolidation, is a financial transaction that you make through a private lender. If you qualify, you can save money by getting a lower interest rate.

Consolidation vs refinancing

Student loan consolidation

Combines multiple federal loans into one federal loan.

Combines private and / or federal loans into one private loan.

What loans can I accumulate?

Private and / or federal loans.

No. Consolidation can reduce your payments by extending the term of the loan, but your interest amount will increase.

Can I access federal loan protections, repayment options and rebate programs?

Will I pay only one monthly bill?

Consolidation of private student loans

Consolidation of private student loans, or refinancing, means replacing several student loans – private, federal, or a combination of the two – with a single new private loan. You will save money if your new loan has a lower interest rate.

Your financial history, including your credit score, income, work history, and education, will dictate your new interest rate when you refinance. You typically need a credit score of at least 600 to qualify, and rates range from around 2% to over 9%.

Consider private student loan consolidation if you have:

  • Existing private student loans.
  • Good or excellent credit, generally defined as a credit score of 690 or higher.
  • Access to a co-signer with these characteristics, if that doesn’t sound like you.

Refinancing federal student loans into a private consolidation loan means losing consumer protections specific to federal loans. These include the ability to tie payments to income and loan cancellation possibilities.

Like the federal government, private companies offer the option of consolidating several student loans into one. But while you can’t transfer private loans to the federal government, you can bundle federal and installments directly from lender.

The goal of this process is not just to get the ease of a one-time payment, but to receive a lower interest rate based on your financial history.

Use a consolidation calculator compare monthly payments under three different scenarios: federal student loan consolidation, private student loan refinancing, and income-based repayment plans.

Current rates from private refinancing lenders

Federal Student Loan Consolidation

The federal loan consolidation has no credit requirement and offers the benefit of a single loan bill and potentially lower payments. But that’s only for federal loans, and it won’t lower your interest rate. Consider federal consolidation if you:

  • Need to consolidate to be eligible for income-based repayment or cancellation of utility loans. This is the case if you have Federal Family Education, Perkins, or Parent PLUS Loans.
  • You want just one federal loan payment, but you don’t have to be significantly less.
  • When you consolidate federal loans, the government pays them back and replaces them with a direct consolidation loan. You are usually eligible once you graduate, drop out of school, or have not enrolled part-time. Consolidating your federal loans through the Department of Education is free; to avoid companies that charge fees to consolidate them for you.

When you consolidate federal loans, your new fixed interest rate will be the weighted average of your previous rates, rounded to the next 1%. So, for example: if the average is 6.15%, your new interest rate will be 6.25%.

In addition, you will get a new loan term ranging from 10 to 30 years. Your repayment term will generally begin within 60 days of the first disbursement of your consolidation loan and will be based on your total federal student loan balance, among other factors.

How to Consolidate Federal Loans

To connect to studentsprêts.gov and click on “Complete Consolidation Loan Application and Promissory Note”. You will need to complete the application in one session, so gather the documents listed in the “What do I need?” Section. section before you begin and set aside about 30 minutes to complete it.

1. Enter the loans you want to consolidate or not.

2. Choose a repayment plan. You can either get a repayment schedule based on your loan balance or choose one that ties payments to income. If you choose a income plan, you will then complete an income-based repayment plan request form.

3. Read the conditions before submitting the online form. Continue to repay your student loan as usual until your service agent confirms that the consolidation is complete.

If you are considering a federal or private student loan consolidation to achieve a significantly lower loan bill, consider income-based repayment instead.

The government offers plans that reduce payments to 10 or 15% of “discretionary” income and offer a discount on the remaining balance after 20 or 25 years. You can register for free on studentsprêts.gov.

If you have a large loan balance and low income, income-tested repayment is probably your best option for the lowest monthly bill.