Is Consolidation Right For You
Before you consolidate, consider the following pros and cons:
- One servicer, one statement, one payment
- Lower monthly payments
Do you have one of these eligible loan types?
- Direct Subsidized and Unsubsidized Loans
- FFELP Subsidized and Unsubsidized Loans
- FFELP PLUS Loans
- Perkins and Federal Nursing Loans
- Health Education Assistance Loans
- Supplemental Loans for Students
Other factors to be aware of:
If it looks like consolidation will work for you, its easy to apply:
- Online: Complete your application at StudentAid.gov
- Mail: A paper application can also be printed, completed, and mailed
Note: Just remember, you must continue making payments after submitting your application until you receive notice from your servicer that underlying loans have been paid off. You have the option to select the servicer of your choice
How To Consolidate Student Loan Debt
Student debt is a little unique when it comes to consolidation. Interest rate reduction is not always the primary goal. Thats because federal student loan interest rates work differently than rates on other types of debt. As a result, you cant always consolidate to cut interest rates.
Instead, you generally consolidate student loans to achieve one of two things:
That being said, there is a way to lower APR on student loans. However, it often involves converting federal student loan debt to private.
Cons Of Consolidating Student Loans
While consolidating can be a useful tool, there are still some drawbacks to be aware of before making the decision:
- Pay more interest over time: Choosing to pay off your loan over 30 years will lower your monthly payment but cost you more in interest over time. Youll also be in debt for a longer period of time, which could impact other parts of your finances.
- No lower interest rate: The primary draw of refinancing is that you can often find a lower interest rate than what youre currently paying. With consolidation, your interest rate is calculated as the weighted-average interest rate of the loans youre consolidating, rounded up to the nearest one-eighth of a percent. Because of this, your interest rate could be slightly higher than what youre currently paying.
- Lose progress toward federal forgiveness programs: Consolidating your loans could cause you lose progress youve made on federal programs like PSLF or an existing income-driven repayment plan.
- Interest is added to your balance: If you have any unpaid interest on the loans that youre consolidating, that interest will be added to your principal balance when you consolidate. Interest will then accrue on this higher balance.
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Why Should You Consider An Online Lender
While you can still get a loan the old-fashioned way by visiting a local bank branch, more traditional and modern lenders are now offering completely online loan application and funding processes. Some of the benefits of choosing an online lender for your debt consolidation loan include:
- Convenience, including the ability to complete all your paperwork from the comfort of your home or office in just a few minutes, on your own schedule
- Data security, as both online and traditional lenders must comply with the same federal laws that protect customer information
- Instant access to resources that can help you improve your financial situation, such as loan calculators that help you estimate your monthly payments
- Robust customer support, including 24/7 access to chat and phone service from many online lenders
- Speed, with funds available to qualified borrowers within 24 hours from some lenders
- Transparency through platforms such as Credible and LendingTree so you can compare rates and fees across lenders without the legwork of phone calls and appointments
Despite these advantages, online lenders arent the right fit for everyone. Some borrowers may get the best rates from their local bank or credit union, especially long-time customers of those institutions. You might also prefer a debt consolidation loan you can manage in person rather than through an online account.
How To Consolidate Private Student Loans
Private student loans are a bit of a different game. They are much more like car loans or home loans. There are different interest rates and fees offered by different banks to student loan borrowers.
If you have private loans, it can really pay off to shop around and find a great rate for a consolidation loan. As mentioned above, Use Credible to find a great student loan consolidation and refinancing rate. Credible is a marketplace for student loans where you can receive offers from multiple lenders after filling out a simple form. Credible vets everyone they work with so they only work with quality lenders. Don’t forget to take advantage of your gift card bonus offer for refinancing with Credible.
You can start the process right here: Credible Refinancing.
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Debt Consolidation Loans That Dont Put Your Home At Risk
A better option might be a 0% or low-interest balance transfer card. But youll need to consider if a fee will be applied to the balance transferred.
This can be the cheapest way provided you repay the money within the interest-free or low-interest period.
Keep in mind that youre likely to need a good credit rating to get one of these cards and might have to pay a balance transfer fee.
You might also consolidate your debts into an unsecured personal loan, but again, youll need a good credit rating to get the best deals.
Find out more in our guides:
How To Consolidate Debt In General
Get professional help to consolidate credit card debt, so you can rest easy knowing you found the right solution for your needs.
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Student Loan Consolidation Vs Student Loan Refinancing
Student loan consolidation and student loan refinancing are similar in that they both ultimately achieve the same goal: They combine multiple recurring student loan payments into one single payment. However, there are some key differences between the two that you should be aware of.
Federal student loan consolidation is only possible through a Direct Consolidation Loan via the federal government, specifically the Department of Education. Refinancing, however, applies to both federal and private loans, and allows you to transfer any number of those loans to a private lender, such as a bank or credit union. When the lender purchases your loans, you get a new interest rate determined by your credit score, income, and the weighted average interest of the loans being consolidated. You may also have the option of selecting a fixed or variable interest rate.
When it comes to repayment, federal loan consolidation gives you two options: You can either stick to a standard 10-year repayment term, or apply for an income-based repayment plan. The latter is more affordable, but it can potentially double your repayment term. If you choose to refinance, you may be offered several options depending on the lender, typically ranging from five, 10, 15, and 20 years.
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When Student Loan Refinancing Makes Sense
It can make a lot of sense to refinance your private student loans. When you refinance your loans, you have the potential to lower your interest rate and lower your payments.
When you do refinance, it’s important to look at both the interest rate, and the loan term. You can get refinancing loan terms from 2 years to 20 years, and the term length you decide on has a big impact on both your payment and the interest you’ll pay.
Recommendation: Try to refinance your loan for no more than 7 years to get the best interest rate.
Here’s an example of how this can make sense financially :
This refinancing loan was for NO cosigner, and was based on him having excellent credit. As you can see, even though the loan term is a little longer than we recommend, but because of the much lower interest rate, he’s able to BOTH lower his monthly payment by 35% and pay over 50% less interest over the life of the loan.
If you’re looking at refinancing, we recommend Credible – they are a student loan refinancing comparison tool that shops a bunch of different lenders for you to find the best rate.
We highly recommend Credible because you can see if it’s worth it in about 2 minutes with no credit check. Plus, College Investor readers get up to a $1,000 gift card bonus for refinancing with them. Check out Credible. Or, check out this list of places that offer student loan refinance.
Can I Get An Installment Loan With Bad Credit
While a high credit score can improve your chances of getting approved for an installment loan, its possible to get a loan if your credit score is lower. You should expect to get approved at a higher interest rate, and may be required to pay extra fees, such as origination fees .
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Complete A Consolidation Loan Application
After gathering the necessary documentation, complete a Direct Consolidation Loan Application and Promissory Note. This free application can be submitted online or in hard copy and includes the following sections:
- Choose Loan & Servicer. The first section of the loan application requires you to select which loans to consolidate and then calculates the new consolidated loan amount and interest rate. This is also where youll request a grace period and choose a loan servicer.
- Choose Repayment. Federal student loan repayment options depend on the types of loans youre consolidating and your financial status. This section of the application calculates your estimated monthly payments under several plans using your income, family size and tax status. Finally, youll be asked to choose a repayment plan before moving on to the next section of the application.
Check out this application demo for step-by-step guidance throughout the application process.
Student Loan And Bankruptcy Exception
|More About Student Loans|
|Public Service Loan Forgiveness|
There is a limited exception to when you can discharge your student loan debt in bankruptcy. To do so, you must prove to the bankruptcy court that you have an undue hardship. Undue hardship is defined as the permanent physical inability to work. You must must prove in bankruptcy court:
- A physical inability to work
- A likely inability to work for most of the loan term
- A good-faith effort to repay the debt
- Paying the debt would prevent the borrower, his or her spouse, and dependents from maintaining a âminimalâ standard of living.
Any time you consider bankruptcy, it is wise to consult with a licensed bankruptcy attorney. Most attorneys will offer a free initial consultation.
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You Want To Lower Your Monthly Payment
When you graduate, youre automatically enrolled in a 10-year Standard Repayment Plan. If you cant afford your payments, consolidating can help. When you take out a Direct Consolidation Loan, you can extend your repayment term to up to 30 years, significantly reducing your payment.
Youll pay more in interest over the length of your loan with the longer repayment term, but the trade-off is that youll have more breathing room in your budget in the early stages of your career.
Should I Consolidate My Student Loans Heres When It Makes Sense
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Should I Refinance Or Consolidate My Federal Loans
One of the biggest benefits of student loan consolidation is that it keeps your federal student loans with the federal government. While consolidation wont necessarily save you money, it ensures that you retain access to things like the COVID-19 forbearance period and loan forgiveness options.
With that being said, some borrowers may choose to refinance instead of consolidating. When you refinance, your federal loans will turn into private loans, so youll lose federal benefits. However, refinancing could get you a much lower interest rate on your loans, which could help you pay them off faster and more cheaply.
What Will Happen If I Stop Paying My Debt Consolidation Loans
Most of the debt we have to pay is unsecured debt. Unsecured debt can include credit card debt, student loans, or personal loans. But what will happen if I stop paying my debt consolidation loans
This article will cover how to deal with unsecured debts and get out of debt within a short time. It will also discuss what happens if you fail to pay credit card debts and other types of loans. On top of that, you will get the alternatives you have to deal with when you default.
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Is It A Good Idea To Refinance Federal Student Loans
Private student loans don’t offer the same flexibility federal student loans do. Because you’ll lose access to all of the benefits that come with federal loans, refinancing federal loans can be a big gamble.
But it could be worth refinancing if you have a strong income and job security and know you won’t have to rely on federal loan benefits. Plus, if you have both federal and private loans, you could just refinance your private loans only. An honest evaluation of your whole financial picture will help you make the decision that’s right for you.
Does Consolidation Work For Any Type Of Debt
For the most part, you can only consolidate debt unsecured debts of a similar type. Secured debt refers to any loan that has collateral. So, you typically dont consolidate mortgages or auto loans.
You can consolidate the following:
Each type of debt must generally be consolidated separately. So, for instance, you usually cant combine student loans and credit cards together. There are different ways to consolidate each type of debt:
|Type of Debt|
|1. Installment agreement|
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How To Get Started
Before making the choice between consolidation and refinancing, use a student loan refinance calculator to help you crunch the numbers. The U.S. Department of Education also provides a tool called Loan Simulator to assist you in the decision-making process.
If youre ready to move forward with a student loan consolidation, you can visit the Federal Student Aid website to start the application process. Just be sure to read over the terms and conditions of your new consolidation loan before you click submit.
Next Steps: Gather More Information
To decide if a debt consolidation loan is the correct option for you, talk to your bank to determine what interest rate they will charge, and whether you qualify for a consolidation loan. Then, compare their plan to what you are currently paying.
If you are nearing seven years out of school and are having trouble making monthly debt payments, you may also wish to consult with a Licensed Insolvency Trustee to learn whether consumer proposal or bankruptcy would fit your unique situation. A Trustee can also advise on other debt solutions. Your first, confidential appointment is free.
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