It may surprise you, but not everyone is eligible for student loan consolidation. Many people think that as long as they have graduated from school and have a certain amount of student loans they can consolidate. Well, you may have a minimum balance, but that doesn’t guarantee a thing. Private lenders have established a list of requirements that borrowers must meet. If you do not have a steady monthly income, many lenders will not even consider your application.
When you initially took out your student loans, you probably did not have much of a monthly income. You may have used co-signers to get a private loan, or used your lack of income to get federal loans. Now that you have graduated, lenders assume that you are working and earning an income. Before they agree to consolidate your loans, they will ask you about your monthly income.
Why Do Private Lenders Check on Your Income Status?
Any time you take out a private loan, your financial status is examined. This examination may be in the form of income verification, employer verification, credit checks, and even residency status. When a lender loans out money, he is automatically taking a risk. He wants to make sure that risk is a wise strategy on his part.
If you decide to consolidate your private student loans, your income will always be verified. Often, a lender will ask for a current paystub. If your paycheck is directly deposited into your checking account, you may be asked to provide banking details. Sometimes, even that is not enough. They may ask for a formal letter from your employer indicating that you are currently an employee and listing your annual income. These lenders want to make sure that you have the ability to repay the loan.
What Are the Monthly Requirements?
Private lenders will require that you make at least $1,500 a month or $18,000 a year to be eligible for consolidation. Some lenders will have even stricter income requirements. There is no room for negotiation. You can’t expect to make this amount six months from now. You need to meet the income requirements at the time you put in your application.
If you don’t meet the minimum-income requirement, you may still be able to consolidate your private loans. Often, students have a co-signer for these loans. Many lenders will allow you to combine your income and your co-signer’s income together in order to meet the minimum requirement. The co-signer will be subjected to income-verification and a credit check.
Federal Requirements Are Different
Unlike private loans, you do not have to be employed in order to consolidate your federal loans. There is no minimum monthly income requirement either. In fact, you may be eligible to enroll in the government’s Income-Based Repayment Plan due to a lack of income. Most private lenders no longer consolidate federal loans, so you will need to work through a student loan consolidation company to see if you are eligible.
These companies will verify your monthly income via your employer or via the IRS. They will examine the amount of federal student loan debt you carry, your income, your family size, and where you reside. A series of calculations will determine if you are eligible for the income-based plan. Once you enroll in the plan, you will receive a lower monthly payment along with the following benefits:
- Loan Cancellation/Forgiveness – Your loan will be cancelled after 25 years, regardless of the remaining balance. Certain regulations and requirements do apply. If you are employed in public service and make on-time payments while enrolled in this plan, you are eligible to have a portion of your loan forgiven. You can earn enough credits to forgive up to 10 years of the loan.
- Interest Benefit – Your payments will be tailored to your income. Your monthly payment may only cover the actual loan amount, not the accrued interest on the loan. If you have a subsidized loan, the government will make those interest payments for you.