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How to Determine if You Qualify for Student Loan Consolidation

If you’re juggling multiple student loans, you’ve probably thought about how much easier it would be if you only had one payment to make each month. That’s possible through consolidation, which many lenders offer. It can make paying off student loan debt faster and more convenient. But do you qualify? We can help you find out.


What kind of loans do you have?

There are two types of student loan consolidation – federal and private. Which path you pursue is largely determined by the kind of loans you have. Almost everyone qualifies for federal consolidation, but it’s only available for federal loans and doesn’t lower your interest rate. In fact, it can actually increase your rate.  With federal consolidation, your credit score doesn’t matter. You can bundle your federal loans together, shorten or lengthen your payback time frame, choose a new servicer, and remain eligible for many federal benefits. However, the new interest rate would be a weighted average of the underlying loan rates, rounded up to the nearest eighth of a percent. And the clock starts over for any loan forgiveness programs that require a certain number of on-time payments.

Private consolidation is more selective, but if you qualify, you could potentially lock in a much lower interest rate and save thousands of dollars over the life of your loans. With private consolidation, a lender pays off your private and/or federal student debts and issues you a new loan with new terms. The interest rate is determined by your credit history and economic conditions. Consolidating federal loans with a private lender makes you ineligible for benefits like income-based repayment and loan forgiveness. However, the savings are often well worth it. A recent review by Comet found that people who consolidated with private lenders saved an average of $259 a month and $19,231 over the life of their loans.

What are the advantages of private consolidation?

There are many advantages to private consolidation. You can combine federal and private loans, choose a fixed or variable interest rate, add or release a co-signer, and change the length of your loan term to pay it off faster or slower. With only one payment to make each month, it’s much easier to track progress toward being debt-free. But of all the benefits, getting a lower interest rate is the most valuable. Private lenders can offer significantly lower rates than the federal government. Shaving even a few percentage points off your rate can add up to thousands of dollars a year in savings.

Who is eligible for private consolidation?

Consolidation requirements vary by lender, but there are some common themes. Most lenders want to work with people who have graduated and are now employed. It’s important to have a good credit history, with a FICO score of 650 or higher and a low debt-to-income ratio. Your monthly debt payments should not be more than 36% of your gross monthly income. The minimum amount of debt to consolidate is usually $5,000. For more information about specific requirements, see our reviews of the best banks for loan consolidation.

Are there any disadvantages?

Private lenders generally have fewer forbearance and deferment options if you experience job loss or economic hardship. Consolidating federal loans with a private company would make those loans ineligible for income-based repayment and loan forgiveness programs.  If you work in the public service sector and could eventually qualify for loan forgiveness, it’s important to consider how much could potentially be written off, and how that compares with the savings from a lower interest rate. Some borrowers strategically consolidate certain loans but leave others out, to cut costs but retain some benefits.

Other considerations when consolidating apply to any type of loan. Variable interest rates are generally lower than fixed rates and can look very attractive, but they can go up significantly over time. Consider the length of your loan and assess your risk tolerance before choosing a variable rate. And with any consolidation – federal or private – if you lengthen the term, you will likely pay more, even with a lower interest rate.

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How do you find the best rate?

Now is a great time for borrowers interested in consolidating. In the past few years, new lenders have revitalized the industry and created a much more consumer-focused market. Most companies have online applications that take less than 5 minutes and give you personalized quotes that you can compare side by side. The inquiry is considered a “soft pull” and does not impact your credit score.

We highly recommend that you shop around and get quotes from at least three lenders before making a decision. The following companies are a great place to start. They topped our 2017 rankings, based on their interest rates, transparency, product offerings, ease of applying, and customer service.

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