Debt Consolidation for Student Loans

Student loans have been, for the longest time, lifesavers for students in higher learning institutions. Through these loans, they can take care of tuition and such expenses like accommodation, meals, and entertainment.

But, just like other loans, student loans can be overwhelming during repayment, especially if you have other debts up on your neck. And that’s where either student consolidation or refinancing comes in.

So what exactly is student loan debt consolidation? How does it work? And who are the top lenders for this loan product? This article explores everything about debt consolidation for student loans. Read on;

Fixed APR
Max amount
Min credit score

Best

Earnest

3.49% to 13.03% with autopay
$57,550
650

4.50% to 10.20
No maximum
Not disclosed

3.34% to 12.99% with autopay
No maximum
Not disclosed

APR range
Fees
Terms
Amounth
Unemployment protection

Best

Bank 1

6.95%–35.89%
Up to 5% transfer fee
3–5 years
$1,000–$40,000
No

6.95%–35.89%
Up to 5% transfer fee
3–5 years
$1,000–$40,000
No

6.95%–35.89%
Up to 5% transfer fee
3–5 years
$1,000–$40,000
No

What is debt consolidation for student loans?

Student loan consolidation allows students who feel overweighed by multiple debts to integrate them into a single repayment. Debt consolidation for student loans takes on two approaches;

Federal student loan consolidation – here, beneficiaries of federal student loans can combine several debts into a single loan via the Ministry of Education. Please note that consolidation may also boost your chances of being eligible for other federal repayment programs. Further note that with federal student loan consolidation products, your interests won’t be lowered. Instead, you’ll only get an extension for your repayment

Student loan refinancing – also called student loan consolidation, is a type of consolidation a borrower does via a private lender. Such include banks, online lenders, and credit unions. Here, you basically fish for lower interest rates. Upon qualification, the lender repays your loans and issues you a new one with a new loan product with different rates, and repayment terms.

Federal student loans, thanks to the federal direct loan program, have the second option of integrating the loans into a single direct loan. The new loan will have the borrower paying a weighted average of the previous loan.

Borrowers with both federal and private loans can still consolidate both of them at once through federal government programs and private lenders respectively.

Consolidate loan is right for me?

Answering the questions ‘why’ and ‘when’ you need consolidation loans, correctly, is the key step to establishing whether or not you need the loan.

But that also relies greatly on the individual circumstances of borrowers. For instance, a borrower with different loans, some of which are either overdue or defaulted, can go for debt consolidation to make repayment easier, and faster.

Other circumstances when a borrower can consider consolidation is;

When you have a good credit score – A good credit score will have different lenders approving your loan. Plus, having a good credit score means getting more friendly terms and lower interest rates. Make-no-mistake, though, having a lower credit score could still get you a consolidation loan with some lenders. However, you’ll likely pay higher interest rates and unfriendly terms.

When you have access to lower rates – consolidation only makes sense if the new loan has lower rates than your accumulated debts. A consolidation loan with higher rates will only push you deeper into debts

When you have a consistent income – only go for consolidation if you’ll afford your monthly repayment. Having a strong and consistent income will help you afford your monthly repayments. That’ll help boost your credit profile, too. On the same note, beware of consolidation loans with longer terms. Those ones, apart from having affordable monthly repayments, will have you paying interest for a longer time hence proving expensive in the long run.

Requirements to qualify

This varies from one lender to another and is based on the individual situation of the borrower.

The most basic requirement that cuts across all lenders is that a borrower must be aged 18 years and above.

You should also currently be a legal resident of the United States. For verification, you’ll provide your lender with a copy of your ID.

Most lenders will also require that the loans you are consolidating be progressive with continued repayments.

Most consolidation loan lenders are often keen on the borrower’s income. A strong and consistent income assures the lender that you’ll afford to repay your loan. This is, especially for borrowers looking to consolidate defaulted loans.

Please note that it’s the borrower’s responsibility to prove to the lender that they have a satisfactory repayment program for the new loan. That could include a borrower agreeing to repay the new loan on Pay As You Earn, Income-based Repayment, or Income-contingent repayment plans.

A good relationship with the lender, though not a requirement, can give you an edge in most situations, especially when negotiating interests and repayment terms. And, should you be unable to continue with your current repayment plan, you can always renegotiate the terms.

Your credit score is also a crucial consideration. You’ll find it hard getting your loan approved with a score less than 600. And, if you do, you’ll probably part with higher interest rates. Hence making it expensive.

Please note that the aim is to find a lender with more friendly requirements. Continue searching for such while thoroughly going through their policies. When you find whose policies conform to your financial goals, be sure to reach out to them.

Submit a formal application for the loan. Other steps, thereafter, will depend on the lender in question. However, it shouldn’t be too long. Faster and straightforward application and subsequent approval is the goal of every lender.

Hot Tip:

A form of identification can be your passport, driver’s license, etc. Sometimes, your Social Security number is enough.

Pros and cons

Pros	Cons
Low monthly repayment – student loan consolidation, especially private consolidation comes with the best rates, hence lower repayment thus saving you some bucks. The other way private consolidation helps is by extending the life of the loan. This way, you’ll pay even lower monthly repayments	Could prove expensive in the long run – while longer terms could seem affordable at the moment, they’ll prove expensive in the long run since you’ll be forced to pay more on interests
You don’t need a co-signor – most private financing institutions allow borrowers to sign up for loans on their own. Even better, you can release a cosigner you had started with before the maturity of the loan term. This takes away the burden they’d otherwise bear if you defaulted the loan. Plus, they can also boost their credit score and perhaps qualify for other loan products	Loss of federal loan advantages – consolidating a federal student loan with a private lender will mean taking on the income-based payment approach. This, however, makes you ineligible for federal loan cancelation and forgiveness programs.
Brings all your debts under one roof – tracking your repayments when you have multiple debts and bills to pay is a hassle. Consolidation takes this burden off your shoulder by integrating multiple debts into a single loan with a single monthly repayment	Most student loan lenders give borrowers the option of delaying payments as long as they are still in school. Refinancing and consolidation, however, takes away such advantages. Once you take up a consolidation loan, you must start and keep repaying it
Flexible repayment terms – depending on the lender in question and your relationship with them, you can choose for how long you want to repay the loan, and whether or not you’ll go for variable or fixed interestsFlexible repayment terms – depending on the lender in question and your relationship with them, you can choose for how long you want to repay the loan, and whether or not you’ll go for variable or fixed interests

Consolidate private student loan

Private student loan consolidation is carried out by private lenders such as brick and mortar banks. The lender pays off your existing federal or private student loan and replaces the same with a new loan with new terms and rates.

Only borrowers with loans with higher interests than that of the anticipated consolidation loan should consider private student loans or any consolidation loan for that matter.

For private student loan consolidation, your financial history is crucial. That includes your credit score. Any figure above 600 is safe and will get you a loan with multiple lenders. Your source of income and educational background may also come into play.

Here, you’ll basically pay a rate of between 2 to 9%, or more, based on your financial profile and the lender in question.

Remember, private consolidation loans are best meant for borrowers with existing private loans, stable income, and a good credit profile. Anything out of that will only prove expensive in the long run.

Federal student loan consolidation

Federal student loan lenders don’t have any credit requirements. But still, you’ll enjoy a single loan bill, and lower monthly repayment.

This is only available for borrowers with federal loans, and it may not offer better interest rates.

Federal student loan consolidation sets you up for such advantages as income-driven repayments and public service loan forgiveness. That can come in handy especially for students who’ve already defaulted and are looking to get back on their feet.

Federal consolidation means letting the government pay off your federal loans and replacing them with new debt. Federal consolidation is free and you are eligible upon graduation.

Federal consolidation loan terms range between 10 to 30 years. And, your first repayment is 60 days after the first disbursement but based on such factors as your total student federal loan balance.

Debt consolidation vs Refinancing

Debt consolidation for student loans integrates different federal loans into a single debt. That makes it easier for borrowers to properly budget their income. This way, they can also keep track of their repayment, hardly missing it. However, you can only consolidate federal loans.

Please note that debt consolidation won’t lower your rates. Hence, you won’t save on interests. The only thing debt consolidation does is extend your repayment period hence lowering your monthly repayments but increasing your payable interests.

Debt consolidation comes with multiple advantages. Borrowers get to enjoy federal loan protection, multiple repayment options to explore, even the federal loan forgiveness programs.

Student loan refinancing, on the other hand, combines private, federal, or both loans into a single debt.

Unlike debt consolidation, student loan refinancing grants borrowers access to lower interest rates. This makes them affordable. And since there’s hardly an extension on your term, you won’t have to pay more on interests.

Like in debt consolidation, you’ll have fixed monthly repayments. However, this could be renegotiated depending on your relationship with the lender.

But, on the flip side, student loan refinancing will have you missing out on the benefits associated with federal consolidation. Such include loan protection and federal loan forgiveness.

However, what you choose depends on your unique financial needs.

Hot Tip:

You can go for refinancing which can combine both federal and private student loans.

Frequently Asked Questions (FAQ)

Is it smart to consolidate your student loans?

Consolidation can be an excellent way to bounce back from drowning in debts and rebuilding your credit profile. With Federal student loan consolidation, you’ll get to enjoy loan relief, forgiveness, and protection.

Will consolidating student loans hurt my credit score?

Federal consolidation doesn’t require a credit check. You, therefore, won’t lose any score to hard inquiries. Federal consolidation also features an income-driven repayment program making your monthly repayments affordable. This way, you’ll hardly skip repayments hence no negative credit report.

What credit score do I need to refinance student loans?

Anything above 600 is good enough. However, the best range would be between 650 to 680. This is the minimum requirement for most lenders and will get your loan approved faster and at better rates and more flexible terms.

Is there a way to lower interest rates on student loans?

Yes, and refinancing is your best shot at lower interest rates. Signing up for autopay, including when you lack refinance, can also get your lower rates. That could earn you up to 0.25% off your interest.

Can federal student loans be negotiated down?

Though difficult, renegotiation of terms can be possible with some federal student loan lenders. Your relationship with the lender could also play a huge role here. In some cases, the ministry of Education can stop the collection of federal student loans.