Many students and their parents will use private loans to help finance educational expenses. They may decide to use a combination of federal and private loans to help out with the cost. However, some will rely solely on private loans, which are a popular option due to the fact that private loans are issued based on your ability to pay them back, not financial hardship, along with less red-tape and little government involvement.
Interest on these loans typically begins accruing as soon as the money is disbursed. However, most lenders will not require repayment until after graduation. If you decide to wait and repay your loans after graduation, you will still be responsible for paying back the interest that has already accrued. You may discover that the monthly payments are more than you can handle. Student loan consolidation can provide you a little financial relief by lowering your monthly payments.
Benefits of Private Loan Consolidation
Lower monthly payments, a fixed interest rate, and convenience are the most popular reasons why people choose to consolidate their loans. When you consolidate your private loans, you will be able to extend the life of the loan. Consolidation can give you up to 25 years to pay back undergraduate loans and 30 years to pay back graduate loans. By extending the life of your loan, you will have lower monthly payments. However, lower monthly payments do come at a cost; you may end up paying more in interest charges.
Private student loans are usually charged variable interest, while federal student loans are charged fixed interest. Variable interest, which is influenced by the nation’s economic condition, can be changed monthly, annually, quarterly, or bi-annually. This can significantly increase the amount you owe the lender and make financial planning much more difficult. Consolidating your private loans allows you to have a fixed interest rate. The same fixed rate will be applied to each of your loans. You no longer have to worry about interest fluctuating every few months.
You may also have the opportunity to get a lower interest rate. Now that you have entered the workforce, you have begun establishing a credit history. If your credit history has improved by at least 50 points, a consolidation company or bank may be able to get you a better overall rate.
If you are like most college graduates, you probably used a combination of private loans. Each of these loans has a different interest rate, different life, and different monthly due date, so it can be difficult to keep all the information straight. By consolidating, you will receive just one bill each month for all of these loans. You may gasp the first time you see this bill, but remember that this will be the only private student loan bill you receive all month!
Who Consolidates Private Loans?
You have the option of consolidating your private loans with a consolidation company or a bank. A good rule of thumb is to research at least a few of these organizations before you make your final decision. Avoid being pressured to make an immediate decision, and always read the fine print, which may contain information about hidden fees or penalties. These organizations will probably offer different fixed interest rates and terms, so it always best to shop around.
Each company will have their own requirements that you will need to meet in order to consolidate these loans. However, you will need to meet these minimum requirements to be eligible:
- Have either graduated or withdrawn from school
- Have a minimum of $5,000 to $7,500 in private student loans that need to be consolidated: Maximum ranges can vary from $150,000 to $300,000.
- Have private loans in good standing
Companies may also require credit checks, minimum-income requirements, and even residency status. You may also be able to drop any co-signers of your loans as long as you can prove that you can pay back the money. Remember, you will have to go through a separate student loan consolidation process to combine your federal loans.