Even thinking about how you are going to pay off your student loan debt can be overwhelming. You are not alone, over 40 million former students have loan debt. The total amount of student loan debt in America rises by 3000 dollars every second. Many former college students are uninformed about how to or are unable to pay back their debt. Luckily, there are a few ways that can lighten the burden of your debt and help you pay it off. Through the use of programs like Student Loan Consolidation or Refinancing your debt can start to disappear at a rate that works for you without going into default.
What is Student Loan Consolidation?
Often times borrowers have more than one loan. So, when you are making payments you are making payments on many loans, not just one. Through the Direct Consolidation Loan program, you can combine your loans (depending on the type) into one loan. This makes your payments smaller and easier to manage.
What is Student Loan Refinancing?
Student loan refinancing is a similar concept to student loan consolidation except that it is done through a private lender. This is a better decision for borrowers who are generating more income than when they started college. When you sell your loans to the private lenders, you also give up the federal programs that go along with them. This makes it harder to pause your loan payments and causes you to lose your eligibility for income-driven plans.
How to Consolidate your Student Loans
1. Separate your Federal and Private Student Loans
Private student loans and federal student loans have separate consolidation procedures. By separating and being aware of which kinds of loans you have, you will be able to identify what your consolidation options are.
If your loans are federal
You most likely qualify for a government program to consolidate these loans. The Federal Direct Consolidation Loan program will allow you to have only one bill each month. You will also be able to apply for Income-Driven Repayment, which you cannot get from most private lenders. Keep in mind, the interest rate from these consolidated loans is weighted. This means that your interest rate is rounded up to the nearest ⅛ of a 1%, so you may slightly raise the overall amount you pay in interest. If you are consolidating loans with varying interest rates, the interest rate will always be in between.
If your loans are private
You will have to go the refinancing route. Student loan refinancing is done through private lenders. Each lender’s policy is different, so be sure to explore your options before you pick the one that works the best for your situation.
2. Verify your student loan consolidation eligibility
Usually, the only qualification for a federal student loan consolidation program is that your loans are federal loans and not private (or have been consolidated previously by a private lender). In order to get the lowest monthly payment possible in this situation it is helpful to consult a student loan specialist.
If you have private student loans, the basic qualifications for refinancing are:
- Good credit score and standing (above 660)
- Balanced debt-to-income ratio (lower than 45%)
- Proof of stable income (above $25k/year) likely in the form of pay stubs
3. Begin the Application Process
Applying for the Federal Student Loan Consolidation program can be done electronically or through a paper application process. The electronic application usually takes around a half an hour to fill out and requires you to have a verified FSA ID, basic contact information and income verification. Application requirements for student loan refinancing vary between lenders.
How to Pick The Best Student Loan Servicer
Once you’ve decided that student loan refinancing is right for you, it’s time to make another tough decision: which servicer do you go through? There are a lot of different companies that specialize in student loan refinancing, so how do you know which one works best for your loans? Here are some things to consider when analyzing a loan service company:
- Interest rate
- Are they fixed or variable interest rates?
- Is there an option to postpone your payments?
- Reviews left online by current or past borrowers
- What are features they have in their plans that others do not?
Private Student Loan Lenders
There are a lot of private loan lenders to choose from, and many different reasons to consider when selecting one. The following is a list of some of the top lenders in the industry.
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Student Debt Relief Loan Refinancing Advertiser Disclosure
College Ave: College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
College Ave Refi Education loans are not currently available to residents of Maine.
1 – The 0.25% auto-pay interest rate reduction applies as long as the borrower or cosigner, if applicable, enrolls in auto-pay and authorizes our loan servicer to automatically deduct your monthly payments from a valid bank account via Automated Clearing House (“ACH”). The rate reduction applies for as long as the monthly payment amount is successfully deducted from the designated bank account and is suspended during periods of forbearance and certain deferments. Variable rates may increase after consummation.
2 – $5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees. Information advertised valid as of 04/26/2019. Variable interest rates may increase after consummation.
3 – This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
ELFI: Subject to credit approval. Terms and conditions apply. To qualify for refinancing or student loans consolidation through ELFI, you must have at least $15,000 in student loan debt and must have earned a bachelor’s degree or higher from an approved post-secondary institution.
LendKey: Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
CommonBond: Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate.
Splash Financial: Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval.com
Earnest: To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest’s fixed-rate loan rates range from 3.89% APR (with autopay) to 7.89% APR (with autopay). Variable rate loan rates range from 2.50% APR (with autopay) to 7.27% APR (with autopay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms of 10 years or less. For loan terms of 10 to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 0.26% and 5.03% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of April 23, 2019 and are subject to change based on market conditions and borrower eligibility.
Auto Pay Discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 04/23/19. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice.
Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 303 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, e-mail us at firstname.lastname@example.org, or call 888-601-2801 for more information on our student loan refinance product.
Don’t keep putting off finding a way out of debt. By utilizing either student loan consolidation or refinancing programs you will get out of debt sooner and more easily. Through educating yourself and finding out which program or lender is right for you, a brighter financial future will emerge. If you are confused about how to start strategizing, student debt relief offers support programs with loan experts that will help you plan your debt repayment.
Federal Student Loan Consolidation FAQ
What types of federal student loans are eligible?
All federal student loans are eligible for a consolidation, but not all repayment plans are available for the consolidation.
When can my loans be consolidated?
You are typically able to consolidate after you graduate, leave school, or fall below half-time enrollment.
Will my interest rate change?
Federal consolidation does not lower your interest rate, it simply takes a weighted-average rate of the loans you already have. Because federal consolidation doesn’t change your rate, if you are a highly creditworthy borrower, you may want to consider private consolidation or refinancing.
Will federal consolidation change my repayment options?
Federal student loan consolidation often allows you to extend your repayment term based on your consolidated loan balance. Borrowers are often able to extend their term from 10 to up to 30 years. This may lower your monthly payment (but may also increase the total amount you pay over the longer term).
When will I begin repayment on my consolidated loan?
Repayment on a consolidated loan begins immediately, with most borrowers receiving their first bill within 60 days of approval and disbursement of their newly consolidated loan.
Can I still take advantage of my grace period?
Yes. If any of your current student loans are still within their grace period, you can delay repayment on your newly consolidated loan until your grace period end-date. You can do this by asking the loan servicer of your consolidated loan to delay processing your application until toward the end of your current grace period.
What if I’ve already consolidated my federal student loans?
In this case, you cannot re-consolidate using the Direct Loan program unless you have added another federal student loan to your total loans since then. You can refinance or consolidate your federal loans into private loans even if you’ve already gone through a federal consolidation.
Can I consolidate my student loans if I’m currently in default?
If the loans are Federal, yes, as long as you don’t have a wage garnishment against you. Consolidating your defaulted student loans and enrolling in an Income-Based Repayment plan can be a great way to get a “fresh start” and make your student loan situation much more manageable. Those that have a wage garnishment must first go through rehabilitation before being eligible to consolidate.
By consolidating, can I take advantage of Income-Driven and Forgiveness Plans if I’m eligible?
Absolutely! This is often one of the best reasons to consolidate your federal student loans. Keep in mind though, you are not automatically enrolled into the income-driven plans. You must choose this option when consolidating (or later on) to take advantage of them. Further, not all federal loans are eligible to enroll in all income-driven plans. For example, Parent Plus loans are only eligible for Income-Contingent Repayment (not IBR, PAYE, or REPAYE programs).
Is there an application fee to apply?
There is no application fee for federal student loan consolidation.
Can I apply for federal consolidation online?
Yes, you can apply directly online here.
How can I learn more before I apply?
You can learn more about the federal consolidation process and your options through the Department of Education as well as our federal student loan consolidation page. You can also call 1-844-669-4407 to talk to a company focused on assisting borrowers.
Private Student Loan Consolidation FAQ
Am I eligible for private student loan consolidation?
Because private institutions do these, there is no automatic eligibility. Generally, you will be evaluated based on your creditworthiness. If you are behind on your loans, it’s unlikely that you will be eligible.
When can my loans be consolidated into a private loan?
You are typically able to consolidate after you graduate, leave school, or fall below half-time enrollment.
Will this lower my interest rate?
This depends, on your current rate and your creditworthiness. If you have a high rate and a good credit score, you may have a good shot at eligibility. LendKey and CommonBond are just a few of the sites that can help you.
How much does private student loan consolidation/refinancing cost?
It varies depending on which private lender you decide to work with. Generally there are no origination fees or application fees.
If I’m struggling with my private loans, are there forgiveness programs or other ways to reduce my payment?
There are currently no forgiveness programs for private loans, but some law firms specialize in private student loan relief. Student Debt Relief may be able to help you identify those firms that specialize in this area. Click here to learn more about those options or call us for more information at 1-844-669-4407.