Deciding to consolidate your student loans is a major financial decision. You may have discovered that you just do not have the ability to make your monthly payments. You may be looking to change your variable interest rates to a more manageable fixed rate. You may want more time to pay back the loans so that you can save a little of your paycheck for retirement. Whatever your reasons, you need to assess your financial situation carefully and apply for a consolidation package that works best for you.
People use federal loans, private loans, or a combination of both to help finance their college education. However, you are not allowed to consolidate these loans together. Private loans are governed by different rates, terms, and regulations than federal loans, so you will need to go through a completely separate process to consolidate private loans and federal loans.
What You Need To Do
It is important to review your paperwork and gather necessary documents before you begin talking to lenders or companies about the student loan consolidation process. This will not only help you save time once the process begins, but will also help you ask important questions when talking to different lenders.
Once you consolidate your loans, you will receive one monthly bill for your private loans and one bill for your government loans, so you will need to pull the paperwork for each of your student loans. Review this paperwork carefully, and look at any borrower benefits you may be receiving. Benefits may be in the form of rebates, rate discounts, or even cancellation benefits. Review the fine print to see if these benefits will be discontinued as a result of consolidation. Calculate the cost of losing those benefits.
Create a spreadsheet to assess your financial liability for each loan. Examine the interest rate, current monthly payment, and term of the loan. This can be a little tricky for loans with variable interest rates, so make sure to do a few calculations for best- and worst-case scenarios. When you consolidate private or federal loans, you will be given a fixed interest rate. The rate will apply to all of your loans, which can be good or bad. If you have a large loan with relatively low interest, and a handful of smaller loans with high interest, your new rate may not be such a good deal. You will probably end up paying more interest on the larger loan.
Also, request your credit report a month or so before you begin the consolidation process. If your credit history has improved since you initially took out the loan, you may be eligible for lower interest rates. Reviewing you credit report in advance can ensure all the information is correct and give you time to correct any errors.
Keep in mind that you will only be able to consolidate loans that are in your name. This sounds simple enough, but student loans are unique. Your parents may have taken out a federal or private loan to help pay for your college education. Only they will be able to consolidate those loans.
How to Apply
There are a variety of student loan consolidation companies and banks that offer consolidation services. Most student loan consolidation companies offer services to consolidate federal loans and private loans. Banks primarily consolidate private loans due to a change in federal student loan laws.
Each company and lender has their own application process for consolidating these loans. It is extremely important that you thoroughly understand the impact of submitting an application. Some organizations assume that by sending in the form, you are completely committed to going through the process with them. They may let you make corrections or adjustments, but it can be hard to completely cancel their service. Remember, you typically have only one chance to consolidate your student loans.
As you research different consolidation companies, you need to pay attention to the current interest rates. These companies will adjust their rates periodically based on the economic climate. Your goal, if you can hold out, is to get the lowest fixed interest rate possible. Look at the company’s website or give them a call to learn about some of the average rates they are charging. If they are reluctant to share this information with you, a red flag should immediately go up.
Now, you are ready to apply. Prepare to be asked to fill out a detailed application listing each of the loans you want to consolidate. Most of this information can be found on your billing statements, lenders’ websites, or at your school’s financial aid office. You may also be asked to provide repayment schedules, attach a copy of the original loan agreements you signed, or provide references. Companies are not allowed to charge an application fee to consolidate federal loans. Many companies will not charge an application fee to consolidate private loans either.
Once you submit your application, the company will review your answers and contact the loan holders. Typically, you will receive a statement listing the loans you want to consolidate, and be given a certain number of days to review the statement for accuracy. Then, the company will pay off your loans and begin billing you directly each month. The entire process usually takes between 60 and 90 days.