Step back and think of all the reasons why you want to consolidate your student loans. Are you just looking to have lower monthly payments? Maybe your interest rates are too high and your credit history has significantly improved. You want to see if there is any way to get a little relief on that rate. Perhaps you are just tired of having to keep track of 10 different student loan bills every month and want a way to streamline your expenses.
The reasons that you list may or may not be possible to achieve. Many student loan consolidation companies and private lenders will require a minimum loan balance. This is especially true if you are looking to extend the life of your loan. If you just have $4,000 in loans, do not expect to be given 30 years to pay back that money. In fact, you probably won’t be able to consolidate at all.
Why Are Minimum Balances Required?
Consolidating a person’s student loans is not a simple task. There is plenty of work involved, so companies want to make sure that it is worth their time and effort to do the work. To have a better understanding of the work involved, here is a look at the typical consolidation process:
-You fill out an application listing all of the student loans that you want to consolidate.
-The company consolidating your loans contacts each of these lenders to verify that the information you provided is correct. Most people use a variety of different lenders. It is not uncommon for the company to have to contact four, five, or even eight different lenders.
-Once the information is verified, you are given a chance to make changes or corrections.
-After you agree, the company pays off your original loans in full, again making contact with each of your lenders.
-Then, you start paying your monthly bill directly to the consolidation company.
If you have just a few thousand dollars in student loans, most companies will deny your application. It just isn’t worth their time to go through all this work. Plus, it probably isn’t too beneficial for you either. Think of all the extra interest you would end up paying if you consolidated only $2,000 in loans.
Remember that you cannot consolidate your federal and student loans together. This means that you will need to have a minimum federal student loan balance and a minimum private student loan balance. You may find that you only have the ability to consolidate one, but not both types of loans.
Private Loan Amounts
Most companies will require that you have at least $5,000 to $7,500 in private student loans. A few companies will even require a $10,000 balance. Just because you meet the minimum balance requirement does not mean that you will be given 20 additional years to pay back the loan. Many companies will extend a loan based on the amount of your remaining balance. The more you owe, the longer your loan will be extended. However, there may be room for a little negotiation with these lenders. There is also a maximum amount of loans you can consolidate. Most lenders will base this maximum on the type of education you received. Undergraduate loans typically cannot exceed $150,000. Graduate loans cannot exceed $300,000.
Federal Loan Amounts
Student loan consolidation companies will be able to consolidate your federal loans. For the most part, private banks no longer offer this service. Each of these companies will have different minimum-balance requirements. Some require at least $20,000 in Stafford Loans to consolidate. Others will require at least $10,000 in Direct Loans and Federal Family Loans to begin the process. The process is very similar to consolidating your private loans. If you owe a large amount on your loans, they will be extended longer. In most cases, you will only be able to consolidate up to $150,000 in federal loans.