Most graduates finish college with multiple loans, from federal to a combination of federal and private student loans. Depending on which loans you took, you can face managing repayment to a number of lenders each month. If you have federal and private loans, want to simplify your repayment and adjust your interest rate, a private consolidation may be right for you.
What is a private consolidation?
A loan consolidation is when you combine multiple debts into one loan with one monthly payment. A private student loan consolidation (also called refinancing) will consolidate private student loans and federal student loans into one payment. This means that your financial history will determine your interest rate of your new loan.
Federal loan consolidation is different from private loan consolidation, and can only be used to consolidate federal student loans.
Who Should Consolidate Private Student Loans:
- Borrowers with high interest rate loans, or a mixture of high and low interest rates
- Borrowers who have multiple monthly payments from multiple servicers
- Borrowers who want to adjust their loan terms
- Borrowers who want the option to switch to a variable or fixed rate
Who Shouldn’t Consolidate:
- Borrowers who don’t have a credit score of at least 640
- Borrowers who currently have low fixed interest rates on their loans
- Borrowers with limited work experience and a low debt to income ratio
Private Consolidation Tips
- Not all loans have to be included in the consolidation, consider only adding your high interest rate loans and keep the loans you like
- Compare offers with multiple lenders to ensure the best rate possible with the terms you are looking for
- Consider adding a strong cosigner to get a lower rate. Some lenders offer a cosigner release after just 12 months
- Consolidate before you leave your high paying job or are planning on taking on more monthly debt
How to Get the Best Deal
Interest rates and high monthly payments are usually the driving factor to consolidate private student loans and federal. Whether by extending your repayment or by reducing your interest rate, a private consolidation can help you save on your monthly payment. If you have loans with relatively small balances or loans in the hundreds of thousands exploring a consolidation is worth the time investment.
While consolidating your loan pay close attention to the new interest rate you will receive. Make sure that you pay attention to the APR rate that you will receive to account for any fees that may be associated with the process. Obtaining multiple refinancing offers can help you visualize the pros and cons to each lender. For example, some lenders give higher auto-debit rate reduction, which can be very impactful on the rate you decide on. If you are worried about multiple credit inquiries, FICO considers inquiries in a 30-day period as “rate shopping” and counts them as a single inquiry.
Depending on your student loan goals, a consolidation can help you achieve a lower monthly payment or a lower total repayment. If you are interested in exploring private consolidation offers from multiple lenders, visit Credible.