A mountain of student loan debt faces many college graduates. It may have even taken a few more semesters than anticipated to finish school, so more student loans had to be secured. Some of their student loans began accruing interest as soon as they were disbursed, significantly increasing the amount due. It isn’t always easy to pay off the debt either. When you are just starting your career, high-paying jobs are hard to come by, which can add to the financial pressure you already feel.
Many students will decide to undergo a student loan consolidation process. Consolidating these loans can help you reduce your monthly payment by extending the life of your loan. You may find that you are eligible for lower interest rates based on your improved credit history, are able to drop co-signers, and can exchange your variable interest rates for a fixed interest rate. Plus, consolidating can help you manage your finances more efficiently, and give you the chance to repay your loans early without prepayment penalties.
When Can You Consolidate?
Your federal and private student loans will need to be consolidated separately. Lenders that issue these loans will have their own unique consolidation rules, but a few common requirements exist across the board. First, you must have completed the degree program or dropped out. Secondly, you must have a certain dollar amount in student loans. If you have only a few thousand dollars in loans, you will not be eligible. It isn’t worth your time or the consolidation company’s time to restructure just a few thousand dollars of debt.
Many people will not use student loans to finance just their undergraduate education. They will also use student loans to finance their advanced degrees. You are able to consolidate your undergraduate and graduate student loans separately. Graduate loans are often given longer repayment terms than undergraduate loans.
Federal Eligibility Requirements
The following federal student loans can be consolidated together: Direct Student Loans, Stafford Loans (both subsidized and unsubsidized), Grad PLUS Loan, Federal Nursing Loans, and Perkins Loans. However, you must be listed as the borrower to initiate the consolidation process. If your parents took out the loan on your behalf, they will have to initiate the process. Other eligibility requirements include the following:
- You must have at least $7,500 in federal student loans.
- You must have completed your degree, dropped out of school, or be attending school less than half-time.
If you have defaulted on your federal student loans, you may still be eligible for consolidation. You must agree to the Income-Based Repayment Plan, Income-Contingent Repayment Plan, or make satisfactory payments terms with your loan provider in order to become eligible. There are no prepayment fees or application fees to consolidate your federal student loans.
Private Loan Eligibility Requirements
Individual banks issue private student loans, so each of these loans will have their own interest rates, terms, and conditions. Many students will use a variety of these loans from different banks. This can make consolidation a little more challenging. Review each of your loans to make sure that they are eligible for consolidation. Most companies will only consolidate private student loan amounts between $7,500 and $300,000. Credit checks may be performed, proof of residency may be verified, and a minimum monthly income may be required before they agree to consolidate your loans. Each company can determine what type of metrics they want to use.
People often think that have to have many different private loans to be eligible for consolidation; however, that is not true. You may have just a few private student loans that exceed $7,500. Companies and banks will work with you to see if they can restructure those few loans, too.
Organizations are not in the business to consolidate your student loans because they feel sorry about your financial situation. They are in this business to make a profit, so they charge fees to consolidate your private student loans. There can be application fees, origination fees, monthly maintenance fees, and more. Review these fees carefully to make sure you are not being charged excessively for this service.