Student Loan Consolidation: Everything You Need to Know

student lend consolidation is one of the best ways to drastically reduce the overpower of student loan bills. That ’ south because it both simplifies your monthly requital and can reduce that requital by up to hundreds of dollars each calendar month. According to one psychoanalysis by CNBC Select, the average scholar lend borrower is probable to save between $ 4,000 and $ 7,000 over the life of their loanword if they qualify for private scholar loanword consolidation .
Applying for scholar lend consolidation international relations and security network ’ thymine unmanageable. however, there ’ s more than one means to consolidate your loans, and each has distinct advantages and disadvantages. This steer contains everything you need to understand the two types of scholar loanword consolidation—and help you decide which choice is right for you .

What is student loan consolidation?

student loanword consolidation is a process that combines multiple scholar loans with different rates and term lengths into a individual lend .
There are two chief ways to consolidate your education loans.

  • Federal student loan consolidation: Getting a new Direct Consolidation Loan from the U.S. Department of Education for federal student loans.
  • Private student loan consolidation: Refinancing your student loans with a private lender.

What is federal student loan consolidation?

federal student loan consolidation blends all of your existing federal loans into one new loan with a term ranging between 10 and 30 years. With federal student loanword consolidation, you will have lone one loan payment due to one loanword servicer each month with a new fixate rate. here ’ randomness more on how it works .

Consolidate your federal loans

When you ’ re approved for a federal loan consolidation, the government pays off all your federal student loans. Those erstwhile loans disappear. They ’ re replaced with a single new loanword, called a Direct Consolidation Loan .
When you apply for a Direct Consolidation Loan, there ’ s no initiation fee. however, it ’ south important to note that any private scholar loans you have can not be consolidated with a send consolidation Loan. That ’ second because Direct Consolidation is a federal loan program intended to help borrowers simplify their federal student lend payments. If you want to combine a mix of federal and secret loans, you ’ ll have to pursue private scholar loan consolidation alternatively .

Access government repayment programs

Going the federal route for scholar lend consolidation has a few major benefits. For one thing, it makes you eligible for a number of government-sponsored scholar loan refund programs. here are a few of the big ones .

Public Service Loan Forgiveness

The Public Service Loan Forgiveness ( PSLF ) broadcast is one route to lend forgiveness for teachers, government employees, and anyone who works in the nonprofit sector. Basically, it cancels the remaining symmetry of your scholar loanword debt once you ’ ve made 120 payments while working for an eligible employer. It ’ sulfur besides one of respective programs available to military service members. unfortunately, PSLF isn ’ metric ton available for all federal education loans. however, federal Direct Consolidation Loans do qualify .

Income-driven repayment plans

These programs adjust your monthly payment to an come that corresponds to your income. Many of the government ’ s income-based refund plans are only available to those with either conduct Loans or federally consolidate loans. ( You have to consolidate rear PLUS Loans, for exercise, to qualify for income-based repayment. )

Deferment and forbearance

Both postponement and forbearance put a impermanent pause on loan payments. These protections are available for all federal education loans. even if you do a federal student loanword consolidation, these benefits remain at your disposal .

Get a single fixed interest rate

One of the hardest parts of paying back several different lenders is keeping racetrack of all your statements, repayment terms, and matter to rates. With consolidation, though, you pay only one lender with a single fix matter to rate .
Keep in mind, though it makes paying your loanword easier, direct scholar lend consolidation does not save you any money. Your new interest rate with a direct consolidation loan is just a burden average of your existing rates .
This means that your concern rates will be more or less average together, with the resulting rate leaning more heavily toward that of your bigger loans. Try using a slant pastime rate calculator to get a feel for what your post-consolidation rate will be .
note : Keep in thinker that your concluding leaden interest pace will be rounded up to the nearest one-eighth of 1 %. If the calculator shows you a 5.67 % weighted matter to rate, for exercise, that will translate to a post-consolidation rate of 5.75 % when all ’ south said and done .

What is private student loan consolidation?

Like federal loanword consolidation, secret student loanword consolidation ( besides known as student lend refinancing ) allows you to combine multiple student loans into one loanword. Unlike federal loan consolidation, however, private scholar loan consolidation offers more flexibility. here ’ s how.

Consolidate both federal and private loans

private scholar loanword consolidation allows you to consolidate both federal loans and individual loans. When you do this, the private lender pays off all your honest-to-god loans for you and gives you a unmarried new loan. not everyone qualifies for private student lend consolidation, but if you have a good adequate credit score and strong fiscal foot, it can provide some major perks .
Unlike with union scholar loan consolidation, refinancing can help you save money over the life of your lend. That ’ south because it lets you use your citation score, savings, and job history to prove you ’ re good for your debt—which can help you secure a lower concern rate and shorter repayment term without incurring prepayment penalties .

Lower your monthly payments

With private scholar loanword consolidation, you are not lone consolidating your loans, but besides getting a new loan terminus and interest rate that depend on your stream fiscal visibility. This fresh sake rate can reduce your matter to payments significantly over your refund menstruation .
You may besides be able to choose between a variable star or fixed interest rate. And if you in the first place needed a cosigner on your loans, you may be able to release them of their obligation when consolidate .

Renegotiate your repayment terms

early than a newly sake rate, refinancing besides offers a assortment of refund terms, giving you some choice in how much you pay each calendar month .
If you want to free up money in your budget with lower monthly payments, you can do that by choosing to make payments over a longer period of clock. If you want to pay off your lend more aggressively with a short loan term, you can do that adenine well .

Student loan consolidation: pros and cons

Before you consolidate or refinance your scholar loans, be certain to weigh the benefits and drawbacks .

Pros of student loan consolidation

  • Simpler bills. With a single loan to worry about, your monthly payments will be simpler and easier to manage.
  • Reduced monthly payments. Consolidation can lower your monthly bill by extending your repayment term or giving you a lower interest rate.
  • Release a cosigner. Consolidating can also allow you to release a cosigner and take on the full responsibility of your loans.
  • Work with a new loan servicer. Student loan consolidation lets you choose a new loan servicer—a big bonus if you’re not happy with your current servicer
  • Get out of default. If you’ve defaulted on a loan, federal loan consolidation can provide one avenue to getting back on track.
  • Get a fixed interest rate. Consolidating can replace your variable interest rate loans with a single, new loan with a fixed interest rate. That means your new payment won’t change over time.

Cons of student loan consolidation

  • You could pay more. If you extend your repayment term, you’ll likely pay more in interest over the life of the loan.
  • Your principle could increase. When you consolidate, any unpaid interest on your individual loans becomes part of the principal of the new, consolidated loan. That leaves you with a bigger balance to pay interest on.
  • You could lose emergency protections. Federal loans come with generous deference and forbearance options, and a post-graduation grace period. By choosing to consolidate under a private loan servicer, you forfeit those failsafes.
  • You give up other benefits. Federal loans come with perks—like Public Service Loan Forgiveness (PSLF), Perkins Loan forgiveness, or income-driven repayment options—that you could lose after consolidation.
  • You might lose credit toward forgiveness. Consolidating could reset any progress you’ve made toward loan forgiveness plans like PSL.

Private student loan consolidation vs. federal: Which is right for me?

private student lend consolidation will be a smart choice for some people, while federal scholar loan consolidation will better courtship others. It all depends on your fiscal position, accredit history, and the types of loans you have .
private scholar lend consolidation could be better for you if…

  1. Your student loans are from private lending companies, or you have a mix of private loans and federal student aid.
  2. You aren’t serving in the military, working as a teacher, or working a nonprofit or government job that could qualify you for federal loan forgiveness programs.
  3. You don’t expect to apply for forbearance or deferment for your federal student aid.
  4. You have a good credit score (in the high 600s or higher).
  5. You have a solid job and good financial footing.

federal student loanword consolidation could be better for you if…

  1. You only have federal student loans.
  2. You work for a government organization or nonprofit and qualify for Public Service Loan Forgiveness or other federal forgiveness programs.
  3. You can’t afford your current monthly payment and think you might qualify for income-based repayment options.
  4. You don’t have an amazing credit score or a stable job situation.
  5. You’re in student loan default and want a faster alternative to loan rehabilitation.

Alternatives to student loan consolidation

scholar loanword consolidation doesn ’ triiodothyronine exercise for everyone. If you don ’ t have a average to excellent credit score ( many private lenders require a score of at least 650 ), or you ’ re struggling to make your current payments, consider these alternatives.

  1. Deferment. If you’re between jobs, going back to school, or dealing with financial or medical hardship, you might be able to hit pause on your federal student loans (and interest accrual) by applying for student loan deferment.
  2. Forbearance. Student loan forbearance is similar to deferment, except you’ll have to pay all the interest that accrues during the forbearance period. You also can’t get forbearance for more than a year at a time.
  3. Income-driven repayment plans. If you can’t afford the monthly payment on your federal student loans, you may be able to apply for income-driven repayment plans without consolidating first.
  4. Student loan settlement. If you default on your loans, you can try contacting your servicer to negotiate new terms of payment.
  5.  Keeping your current plan. If you don’t qualify for private student loan consolidation, don’t want to extend your repayment term, or don’t want to lose the benefits of certain federal loans, it might make sense to stick with your current plan. You can always work toward improving your financial situation and qualifying for refinancing later.

How do I begin the student loan consolidation process?

student lend consolidation can take one to two months, so it ’ second best to start the registration process a soon as you ’ ra certain you want to consolidate. The processes differ for federal and private consolidation .

How to begin a federal student loan consolidation

You can apply to consolidate your federal loans online through the Department of Education .

  • Gather your documents. Go to and check out the “What do I need?” section. Get everything together before you begin.
  • Start your loan application. Log into your account to begin the “Federal Direct Consolidation Loan Application and Promissory Note.”
  • Pick your plan. First, choose the loans you want to consolidate. (Note that if you have some loans with unique benefits—like a Perkins Loan you think you could get forgiven—you can leave those out.) Then, use the Department of Education’s Loan Simulator tool to help you compare plans before you choose one.

How to begin a private student loan consolidation
The first step to refinancing your student loans is researching your options.

  • Shop around to get rate estimates. Different private loan servicers offer different interest rates. To see what each can offer, apply for pre-qualification for as many servicers as you can. (Pre-qualifications use what’s called a “soft credit pull,” which doesn’t hurt your credit score.)
  • Compare annual percentage rates. Comparing annual percentage rates, or APRs, is the best way to compare consolidation offers. That’s because the APR includes the interest rate as well as other fees—giving you a more complete picture of the total cost of the loan. The lower the APR, the better.
  • Consider other perks. APR is important, but it isn’t everything. Some loan servicers offer a kind of signing bonus, called a “student loan refinance bonus,” to entice your business. Others let you choose your own repayment term. Before you pick a private loan servicer to consolidate with, look at all these factors. Then, use a student loan refinance calculator to make sure you’re saving the most money possible over the lifetime of your loan.
  • Complete your application. When you’ve settled on a servicer, apply for approval. (Note that this will trigger a “hard credit pull,” which impacts your credit score, so only apply for one servicer if you can help it.)

Find out how much you could save with Earnest

While federal loan consolidation can offer great benefits to certain borrowers, it won ’ thymine save you money over the life of your loanword. Private loanword consolidation or refinance, on the other hand, may save you money by getting you a reduce payment term and lower sake rate. To see how a lot you could save by refinancing with Earnest, do a rid rate check on-line. It only takes two minutes, it won ’ triiodothyronine affect your credit sexual conquest, and, who knows ? It could be your first step to saving thousands on your scholar loans .

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