Sometimes, student loans can become overwhelming for students trying to manage what could be an enormous debt. This is why student loan consolidation has become an option for those who have taken out multiple loans during their time in college.
Whether they’ve accumulated debts as an undergraduate, graduate or medical student, or have acquired both private and Federal loans, there are options available to help combine the debts and often times, reduce monthly payments. To get a better idea of what options are out there, let’s take a closer look at student loan consolidation.
What is Student Loan Consolidation?
Student loan consolidation is similar to consolidating any other loans. Basically, the multiple loans (and sometimes a single loan) that a student may have outstanding get consolidated into one master loan that has a new loan term and new payment amounts.
In most cases, this new repayment tool significantly reduces a student’s monthly payments. Sometimes, the payment amounts are reduced by up to 50 percent, making it an enticing option for recent college graduates not yet working or in low-paying entry-level positions. Not to mention that the borrower now only has to keep track of one monthly payment instead of several.
Typically, student loan consolidation is available in two ways: Federal loan consolidation and private loan consolidation. It’s best for students to explore both options before determine which is right for them.
Federal Student Loan Consolidation
Students who have acquired Federal loans over the course of their college career may be able to take advantage of Federal student loan consolidation options. No matter what type of Federal student loan was taken out (Stafford, Perkins, etc.), or the lender that provided the loans, one company is able to combine them into on master loan for consolidation.
Terms for consolidated loans could stretch out from 10 years to 30 years depending on the length of the original term and how low the borrower would prefer their payments to be. But the major benefit is that Federal student loan consolidators don’t require borrowers to go through a credit check in order to refinance their loans.
Private Student Loan Consolidation
Not all lenders are able to consolidate Federal student loans, because they must be able to work with the government to handle them. However, many lenders are able to consolidate private student loans. But this route is only taken if the student originally borrowed private student loans.
Overall, the process of consolidation is the same with private loans, except that students may have to worry about credit checks (something that doesn’t occur with Federal loan consolidation). Also interest rates, repayment terms and even whether the borrower will need a co-signer to consolidate are entirely up to the lender.
How to Consolidate Student Loans
The standard way for students to consolidate their loans is to work with a lender qualified to consolidate Federal or private student loans. Here are typical steps that a borrower will take to have their loans consolidated:
- Find a lender: The first step in student loan consolidation is to find a lender. It’s good to comparison shop with lenders and terms to determine which is best.
- Apply for consolidation: Once the student has found a trustworthy lender that is offering the right terms, the next step is to apply for consolidation. Often times, this could be handled online via the lender’s website.
- Find student loans: During the application process, students may be required to list all of the loans they took out in college. If the student does not have this information readily available, the Borrower Tracking Office of the Department of Education may be able to provide it.
- Submit application: After all information is gathered and forms are filled out, the student can submit their application. This process is short and easy, usually resulting in a successful consolidation for the student.
It’s also very common for a borrower with student loans from multiple lenders to receive a phone call from a consolidator interested in taking all of the necessary steps for them. However, it’s important for borrowers to conduct the research necessary to ensure that the company representative is legitimate. In any event, personal information should never be disclosed over the phone. It should instead be done in writing.
There’s no doubt that student loan consolidation is a beneficial route for students to take if multiple loans are weighing them down. With tons of options available, getting through the process is easier than ever.