If you’re facing the challenge of repaying student loans, you may be considering loan consolidation. And if you’re like many other college grads, you likely have a mixture of private and federal loans. You may be aware that you can consolidate your federal private loans with a Direct Consolidation Loan. But can you consolidate private student loans?
Good news: you can consolidate private student loans. There are multiple reasons why you might want to combine your private student loans, from simplifying repayment to saving money. In this article, we’ll go over all of the ins and outs of private student loan consolidation.
Top Private Loan Consolidation Lenders
If you’re ready to consolidate your private student loans, the lenders below are some of your top options.
Visit the links to get a better idea of what individual lenders have to offer in the way of private student loan consolidation.
Consolidating vs. Refinancing
In the student loan world, you’ll hear the words “consolidate” and “refinance” thrown around quite a bit. Often, the words are used interchangeably. But, while consolidation and refinancing work hand-in-hand, they involve different processes and offer different results.
It’s important to know whether you’re interested in refinancing your private student loans or whether you just want to consolidate.
- Debt refinancing has the goal of restructuring an existing debt by replacing it with a more favorable debt agreement. The new debt will have better interest rates and terms, which will save you money. Refinancing can—but doesn’t always—include consolidation. You can refinance a single student loan without refinancing the rest.
- Debt consolidation—including student loan consolidation—turns multiple loan or credit accounts into a single debt account. Instead of issuing payments to various lenders and creditors every month, you’ll make one bulk payment to a single lender. Consolidation aims to save you money by avoiding unnecessary fees, and to make debt management more accessible.
Below, we’ll be talking about private student loan consolidation. To learn about loan refinancing, click here. Keep in mind that private loan consolidation is often a result of refinancing and vice-versa. If you consolidate your loans, you may end up refinancing the loans, as well.
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How to Consolidate Your Private Student Loans
So, how can you consolidate private student loans? You can’t consolidate your private student loans with a Direct Consolidation Loan from the federal government. Instead, you have to work with a private lender who is willing to consolidate your loans. Here is what you need to know.
How Does It Work?
Debt consolidation is a common service offered by many lenders, for student loans and many other type of debt. The primary type of debt consolidation is a consolidation loan.
With a consolidation loan, you essentially take out a large loan—one that’s equal to your total outstanding debts.
For example: you have a $5,000 private student loan from Lender A, and a $6,000 private student loan from Lender B. You could take out an $11,000 consolidation loan from Lender C. You use the new consolidation loan to pay off your old loans. Now, you’re only making one monthly payment.
Different types of lenders issue consolidation loans, including brick-and-mortar banks and online lending services. You can even use a home equity loan if you own a house.
Understanding Your Private Student Loans
Even though you might be leaving them behind soon, your current lenders play an essential role in consolidating your private student loans. The first step in the consolidation process is making sure you understand your obligations to those lenders, and what you’ll need to do to transfer your debts elsewhere.
Examine your loan agreement for clauses like prepayment penalties. If a loan has a prepayment penalty, you might be charged a fee in the process of transferring that debt to a new lender. You also need to find out exactly how much you have left to pay off on each of your loans, including any interest that has accrued.
If you want to get the most accurate information before moving forward, reach out to your lender or loan servicer and ask about loan consolidation. Let them know you’re thinking of consolidating your student loans, and ask whether you’ll face any fees as a result. Your current lenders may even offer competitive consolidation loans as a way to keep you around.
Choosing a Consolidation Lender
Lenders have different requirements when it comes to loan consolidation. Some will require you to borrow a minimum amount, while others may not. The credit requirements will also differ from lender to lender. You may qualify for better terms with one lender than with another but have to borrow a higher amount to get started.
The right lender for you will depend on your debt and what you want to do with it. Try the lenders we’ve linked above, and check to see what consolidation options they have. When in doubt, the best option is to contact a lender by phone and talk to a person directly about consolidating your loans.
Starting the Consolidation Process
To consolidate your private student loans, you’ll need to apply for a loan with the lender you choose. The process will be much the same as applying for a new student loan.
When you start the application process (probably online), you’ll need to have handy the amount you want to borrow. This amount should be equal to the amount you have outstanding with other lenders. If you’re going to consolidate all of your private student loans together, enter the total amount of your private student loan debt. If you only want to consolidate a couple of your loans into the new loan, only enter the total of those loans.
Don’t take out a larger consolidation loan than you need to pay off your outstanding student loan debt. Doing so will leave you with more debt than you had initially, which will counteract any of the benefits you’d receive from consolidating.
When to Consider Consolidating
When can you consolidate private student loans? You can consolidate your private student loans any time you’d like. But the best times to consider consolidating your student loans are:
- Right after you graduate from college, and you find that keeping track of your payments is overwhelming. Consolidating your loans as soon as you’re out of school can make the whole process of repayment easier from the start.
- A few years after graduation, when you’ve established yourself in a career and improved your credit score. If your credit score has increased just 50 to 100 points, you can refinance your loans at the same time you consolidate and get much better terms.
Additionally, you should consider student loan consolidation only if you’re up-to-date and making on-time payments to your current lender(s).
Benefits of Private Student Loan Consolidation
If you’re not sure if private student loan consolidation is the right choice, consider these benefits:
- You can save money.
Consolidation doesn’t always mean refinancing. You can consolidate multiple private loans together and still have the same average interest rate that you had before. However, you’ll generally save money when you consolidate because you’ll be dealing with fewer lenders. Fewer lenders means fewer fees, and fewer late-payment penalties resulting from a complicated payment schedule.
- You can extend your loan term.
When you consolidate your private student loans, you’ll get to choose the length of your repayment term. You could choose a term that’s longer than the ones you have now, which will lower your total monthly loan payment. Keep in mind that paying less each month means you’ll accrue more interest in the long-run.
- You can pay off your debt faster.
Alternatively, you can more easily make larger payments each month and pay off your debt more quickly. While your current lenders may allow you to make larger monthly payments, too, doing so with a single consolidation loan is much less complicated.
- You can make repayment easy.
Similarly, the entire repayment process becomes easier when you’re only making payments to one lender. You won’t have to worry that you’ve left one out and started racking up late fees. You can simply enroll in autopay with your new consolidation lender and let the process happen in the background.
- It’s often free.
Consolidating your loans can be completely free. This depends on your current lenders (whether or not they have prepayment penalties) and your new lender (whether or not they charge an origination fee).
- You can (possibly) release cosigners.
College students who take out private loans often need cosigners to do so. If you have cosigners on your private student loans, consolidating may allow you to release them from their liability. This will depend on your new lender, as well as your income and creditworthiness.
Drawbacks of Private Student Loan Consolidation
You can consolidate private student loans, but should you? If you’re still deciding, consider the following drawbacks in addition to the benefits listed above:
- You’ll pay more if you extend your loan terms.
Consolidation often results in lower monthly payments, as mentioned above. However, lower monthly payments lead to more interest accrual in the long-run, which means you’ll pay more overall.
- There may be an origination fee.
Depending on the lender you choose, you may have to pay an origination fee to take out a consolidation loan. You can avoid this by choosing a lender who doesn’t charge an origination fee for consolidation loans.
- Your credit may take a hit at first.
When you apply for a new loan, the lender might perform a hard inquiry on your credit. This type of credit check can lower your credit score by a few points. Additionally, your credit benefits from a long history of on-time payments to one debt account, such as your private student loan lenders. When you close those accounts and open a brand-new one with no history of on-time payments, the lower average account age could reduce your credit temporarily.
What About Federal Student Loan Consolidation?
Federal student loans have their own loan consolidation option: Direct Consolidation Loans. You can also consolidate your federal loans with a private loan, but you’ll lose your federal loan benefits. That means you won’t qualify for programs like Income-Driven Repayment or loan forgiveness.
To learn more about federal loan consolidation, and to learn more about loan refinancing, click here.
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Can You Consolidate Private Student Loans: FAQs
Is it a good idea to consolidate private student loans?
If you want to make one easy payment each month on your student debt, consolidation can be an excellent choice. If your goal for consolidation is to pay less each month, you’ll want to remember that you’ll end up paying more in interest overall.
Can you consolidate private student loans and federal student loans together?
Yes, you can consolidate private and federal student loans together with a private consolidation loan. You cannot consolidate private and federal loans together with a Direct Consolidation Loan, which only applies to federal loans. You should only consolidate your federal loans with a private loan after careful consideration, since you will lose eligibility for beneficial government programs.
Can you get private student loans forgiven?
Private loans do not qualify for the government’s student loan forgiveness programs. However, some private lenders will consider discharging a debt balance in the event of permanent disability or death.
Is there a downside to consolidating private student loans?
The primary downside of consolidating your private student loans is that it can result in your paying more money in the long-term. If you decide to consolidate but continue paying the same amount each month that you were paying in total before, you can avoid this pitfall.
Does student loan consolidation hurt your credit?
When you consolidate your private student loans, your credit score could actually improve in the long-term. However, you should be prepared for it to take a small hit in the short-term. If the lender performs a hard inquiry, your score will lower a few points. Additionally, transferring old debt to a new one will lower your average credit age, which will drop your score slightly for a little while.
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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. (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. (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. Information advertised valid as of 1/27/2021. Variable interest rates may increase after consummation.
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 email@example.com, or call 888-601-2801 for more information on our student loan refinance product.
Ascent: Ascent Student Loans are funded by Bank of Lake Mills, Member FDIC. Loan products may not be available in certain jurisdictions. Certain restrictions, limitations; and terms and conditions may apply. For Ascent Terms and Conditions please visit: www.AscentFunding.com/Ts&Cs. Rates are effective as of 1/1/2023 and reflect an automatic payment discount of either 0.25% (for credit-based loans) OR 1.00% (for undergraduate outcomes-based loans). Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month. For Ascent rates and repayment examples please visit: AscentFunding.com/Rates. 1% Cash Back Graduation Reward subject to terms and conditions. Cosigned Credit-Based Loan student must meet certain minimum credit criteria. The minimum score required is subject to change and may depend on the credit score of your cosigner. Lowest APRs require interest-only payments, the shortest loan term, and a cosigner, and are only available to our most creditworthy applicants and cosigners with the highest average credit scores.