Private student loan consolidation isn’t exactly like a private student loan refinancing, as the introductory interest rate on the new loans isn’t based solely on your credit ratings. However, if your credit ratings have improved significantly, you might qualify for a lower interest rate as well. Whether or not you can qualify will depend on your current circumstances. For instance, if you’ve been out of school for quite some time, you’re probably going to have a lot more options available to you than someone who’s just finishing school and seeking a fresh start. If you’re looking at consolidating because your student loans are all behind and you’ve experienced a recent financial hardship, you’re going to need to take the following steps.
Shop around. There are several different private student loan consolidation companies that offer different repayment plans. Compare the different offers to see what’s best for your situation. You’ll also want to think about your own situation. If you’re having difficulty paying several different high interest debts, refinancing may not be right for you. On the other hand, if your credit has taken a hit and you have several high interest debts that you can’t pay, refinancing may be the answer.
Ask your school. Your school may have contacts with private student loan consolidation companies that they wouldn’t share with you. Also, they probably have contact lists of students who are in situations similar to yours. Your school can also tell you which federal student loan consolidation programs they offer.
Consolidate for lower interest rates. While you may be able to save money when you consolidate using a private student loan consolidation company, you will still end up paying the same total interest on a loan. The federal government’s direct consolidation loan programs only offer a lower interest rate than their private counterparts.
You can consolidate both federal and private loans. It can be hard to decide how much to consolidate since all the loans are so similar. There are pros and cons to both approaches. One of the pros is that when you consolidate all of your loans into one, you get a lower overall interest rate because there’s just one payment to make. The only real downside to consolidating is that you will typically lose some of the benefits of early payoff.
Refinance for better terms. Federal student loans are guaranteed loans, so you won’t lose any of your federal protections if you consolidate. This is great if you’ve had problems repaying your earlier student loans and need a better interest rate to make payments now. When you refinance, you can get longer or shorter terms, and you can refinance on either a fixed or adjustable interest rate, depending on which terms you choose.
Consolidate for credit score benefits. As you probably know, credit score plays a huge role in your financial life. If you’re trying to get into a new job, or if you’re trying to re-establish a good credit score, having a private student loan consolidation can be a big help. You will have more options available to you when it comes to financing, and your monthly payments will be lower than they would be with private student loans alone. However, there are drawbacks to consolidating private student loans as well.
One of the biggest things you’ll do in your loan repayment is pay interest. When you consolidate federal student loans, you will end up paying more in interest than you would if you were to pay each of your individual loans at their current rates. However, it’s worth it when you think about the lower monthly payment you’ll have to make. When you consolidate, you end up with one monthly payment that you can afford. You no longer have to worry about if you can make the payments; if you can, then you do. And if your credit score is still suffering from late payments, then you might want to consider consolidation just to get back on track.