If you have more than one student loan with high interest rates, and therefore more than just one student debt payment to make each month, you may want to consider a private student loan consolidation. Consolidating student loans can help recent graduates refinance and lower their private and federal student loan interest rates and monthly payments.
The benefits of consolidating several different student loans into just one are numerous. First, you save money on interest payments over the term of your loan. By consolidating your loans and lowering your monthly payments, you can start to plan for your future, save for a down payment on a home, or invest for retirement. Moreover, you can rid yourself of the headache of remembering all your due dates and payment amounts. In the process, you can even change your variable interest rate loan to a fixed-rate loan.
While most young adults are likely prime candidates to consolidate their student loans, many are unsure or even intimidated by the process. Below, we will discuss the details of how to consolidate private and federal student loans, including pros and cons of consolidation, eligibility, the loan process, and the information you will need to provide to get the best loan refinancing available.
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Should You Consolidate?
Students who rely on loans for paying their college tuition and other expenses can easily end up having 5 to 10 different debt obligations with 2 or 3 loan servicers, all asking to be repaid soon after graduation. And, if you are planning to go on to graduate school, this number can be even higher by the time you get your higher degree.
Typically, each of the loans you have will also come with their own rate of interest and monthly due date, so keeping tabs on each loan balance and figuring out what is due when can become quite a challenge. If this is the case, then consolidating these loans could be an ideal solution.
But, before you do, it is important to be sure that you understand exactly how much you owe and the weighted average interest expense of your student loans. This is because some lenders just want you to refinance or consolidate so they can earn a fee, meanwhile settling you with loans that may actually cost you more.
Fortunately, companies like Cedar Ed have no-obligation processes meant to help you explore your options with some of the best banks and lenders.
Benefits of Student Loan Consolidation
Private student loan consolidation offers both pros and cons depending on your specific financial circumstances and your current loans.
Here’s an overview of the benefits of working with Cedar Ed Lending:
- Consolidate between $7,500 and $125,000 in undergraduate private and federal student loan debt, and up to $175,000 for graduate students.
- Variable and fixed rates starting from 2.13% and 3.25% (with 0.25% autopay reduction).
- Take advantage of our 5, 10, 15 or 20-year repayment term with no pre-payment penalties.
- Cosigner release available after 12 consecutive on-time principal and interest payments.
- Pause payments for up to 18 months (at lender’s discretion) if you become unemployed. This is the longest unemployment protection in the student loan market!
- A “soft” credit pull is performed to estimate your interest rates. This will not affect your credit score until you are ready to complete the full application.
- No origination fees!
Fewer Outstanding Loans
As discussed before, one benefit of consolidating your student loans is lowering the number of monthly payments you have to make. Depending on the number and type of your original student loans, you may even be able to roll multiple monthly payments into just one. This can make paying off your student loan a lot more convenient.
Lower Interest Rates and Payments
You may also be able to lower your student loan payment amount that is due each month. By comparing lenders and choosing a bank that is willing to offer a lower interest rate, you may be able to lower your student loan interest rates and therefore your monthly bill.
Longer Term Periods
If you don’t have the option to get a lower interest rate on your student debt, an alternative may be to refinance for a longer period of time. While extending your loan term from 5 or 10 years to 15 or 20 years will increase the total interest paid over the life of the loan, it can make your monthly payments more manageable. This can be a benefit for young adults struggling to pay their bills due to other outstanding debt, such as credit card or medical debt.
Variable vs Fixed Interest Rates
Refinancing and consolidating your student loans from variable rates into fixed interest rates can provide some stability in knowing how much will be due every month. For instance, if the rate on some or all of your loans is variable, then you run the risk of having the amount that you owe increase in the future.
Given that the U.S. economy has been in a historically low interest rate environment for the last several years and current rates have nowhere to go but up, variable interest rate loans are likely to increase significantly in cost in the coming years. Ultimately, this will result in your interest payments ballooning on future loan payments.
But, if your loan payment stays the same, or better yet, decreases due to consolidation into a fixed-rate loan, you’d have peace of mind that your rates will never increase.
Better Terms and Conditions
While most government-backed student loans offer at least a few options for repayment, consolidated loans may be able to offer you a wide variety of different repayment alternatives. Some of these may include income-based repayment plans.
Factors To Consider
Yet, while there are several benefits to consolidating your student loans, there are also a few things that you should consider prior to moving forward. One such factor is that, by refinancing, you may end up extending the length of time that you have payments, as mentioned earlier.
For instance, if you currently have ten years of payments left on your current student loans, you may be able to lower the dollar amount of your monthly payment, but you could also be lengthening the time until the loan is paid off. By adding on just a few more years to your loan term, it could also mean that the total amount of money that you repay will be more after you refinance.
Are You Eligible to Consolidate Your Student Loans?
Before you are able to move forward with a student loan consolidation, you will need to make sure that you are eligible. In most cases, a borrower may not be able to consolidate a private student loan with federal student loans via the Federal Consolidation Program.
So, if you have a mix of different types of student financial aid, then you will need to first ensure that the loans you have are able to be consolidated. It is possible, however, to consolidate federal student loans with a private consolidation program. If you are having trouble determining whether you are eligible or not, contact us for assistance.
Applying for a new private loan to consolidate will generally require that you have a good credit score. However, if you have not yet built up a solid credit score or report, as most students and new graduates have not, then it will likely mean that you will have to have a cosigner.
After you have made a number of on-time payments on your new loan, it is possible that the lender will release the co-signer from the loan agreement. The time frame for making these payments can range from 12 to 48 months.
How to Start The Consolidation Process
When consolidating private student loans, the best part of the process is that, once you’ve made the decision to consolidate your loans and provided the lending company your personal information and/or that of your potential cosigner’s, there is very little left for you to do.
The private lender will use your name, loan amount, social security number and various other details to locate your loans and complete their underwriting process. Once complete, you will be presented with your new interest rate, term period, and terms and conditions for approval.
Taking The Next Step
If your student loan payments have become a financial burden, or if you’re just looking for a way to simplify your finances and bills going forward, then consolidating your student loan balances could make sense for you. Start the process now, with no-obligation, and see what interest rate you qualify for.
If you have any questions or think you need additional research, please feel free to check out our blog for information on how to pay off student loans faster, interest rates, student debt statistics, tax credits for loan interest payments, and so much more!