How to Consolidate Student Loans
Interested in reducing your student loans to one payment? This article walks through how you can consolidate your loans.
When you get student loans to pay for school, you usually end up with multiple payments and interest rates after you graduate. This can make repaying your student loans a struggle.
One way to make things a little easier is to use student loan consolidation to put everything in one place. When you consolidate student loans, you end up with only one payment — making everything easier to manage.
You can consolidate federal student loans, and it’s also possible to use private student loan consolidation as well. Here’s what you need to know about how to consolidate student loans, whether they’re federal loans or private loans.
Federal vs. private student loan consolidation
First of all, it’s important to note that getting all your student loans into one place and one payment comes with a different process, depending on whether you have federal or private student loans. In many cases, private student loan consolidation is referred to as refinancing in order to better illustrate its difference from federal student loan consolidation.
- Federal student loan consolidation focuses on your loans from the government. You can ask to have them consolidated into one monthly payment, with one interest rate that represents the weighted average of your current rates, rounded up to the nearest ⅛ of 1%.
- Private student loan consolidation (refinancing) gets all your loans in one place by paying them off with a larger loan. You get private student loan refinancing, and then all your affected federal and private loans are paid off, and you’re left with only one loan, one payment, and one interest rate, which is based on your creditworthiness.
It’s important to note, however, that if you refinance federal student loans using a private lender, you lose access to benefits like Public Service Loan Forgiveness (PSLF) and income-driven repayment. If you still want to access these federal programs, consider using federal student loan consolidation for your federal loans. You can then refinance your private loans, including your private grad loans if you have them.
How to consolidate student loans
Let’s take a look at how to consolidate student loans, depending on whether you turn to federal loan consolidation or use private refinancing.
How to consolidate federal student loans
You can consolidate federal student loans by going to the Department of Education’s student aid website and filling in an application. You need to log in using your Department of Education login, which you should have since the time you first filled out the Free Application for Federal Student Aid (FAFSA) to get your student loans.
Once logged in, you’ll be able to see your loans and your total balance, as well as the new balance and interest rate on your new loan. You can choose your servicer, enter your adjusted gross income, and then choose a repayment plan that works for you. There is no credit check, and you don’t have to worry about getting a cosigner.
With when you consolidate federal student loans, depending on the amount, you might have up to 30 years to repay. Just remember that the longer you extend your repayment, the more you’ll pay in interest. You can get a lower monthly payment, but you could pay more in the long run. It’s also important to note that you can choose which federal loans you want to be consolidated. You don’t have to consolidate all of your loans.
How to consolidate private student loans
It’s a different story when you consolidate private student loans. As with federal student loan consolidation, you can choose which loans you want to consolidate. For example, if you have low-rate graduate student loans negotiated through an organization like Juno, you might not want to consolidate those with other loans.
Carefully consider which loans you want to consolidate. Then, shop around to find lower rates. You might have to fill out some basic information so that the lender can perform a soft credit inquiry to see what you might qualify for. Once you compare rates and repayment terms, you can then fill out a full application. Understand that your credit score influences the interest rate you get when refinancing. If you don’t qualify, you might be able to get a cosigner to help you get better terms.
It’s possible to use private student loan refinancing to consolidate federal loans as well. You can include them in your refinance, but it’s important to note that this will pay off your federal loans. You’ll no longer have federal student loans, so you won’t be able to use PSLF and other forgiveness programs, and you won’t be able to switch to income-driven repayment.
Pros and cons of student loan consolidation
Before you make a decision about student loan consolidation, make sure you understand the advantages and disadvantages.
- Get your loans into one place, making them easier to manage
- Private student loan consolidation could mean a lower interest rate
- Potential for a lower monthly payment if you lengthen your loan term
- Refinancing federal loans could mean a loss of benefits
- Longer repayment terms could lead to more paid in interest over time
- Private refinancing can be harder to qualify for
You can consolidate your student loans to make them more manageable overall. However, before you move forward, it’s important to understand the difference between federal and private student loan consolidation. You should also run the numbers regarding your different types of loans.
Many borrowers have both private and federal student loans. It’s possible to consolidate federal loans separate from private loans. Consider federal consolidation for your federal loans while you refinance your private student loans. Even though this results in two payments, it’s probably still more manageable than the several payments you were making before.
Finally, even if you consolidate student loans to a longer-term, consider making a plan to pay them off sooner. The faster you get rid of student loan debt, the less you’ll pay in the long run.
Miranda has 10+ years of experience covering financial markets for various online and offline publications, including contributions to Marketwatch, NPR, Forbes, FOX Business, Yahoo Finance, and The Hill. She is the co-host of the Money Tree Investing podcast and she has a Master of Arts in Journalism from Syracuse University
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