Staying on top of monthly student loan payments can be very challenging if you have several private loans to repay. In these circumstances, you may consider simplifying the task by consolidating your loans.
Consolidating private loans is technically called refinancing. The following guide will explain what refinancing is, how you may benefit from it, and how you may begin the process of consolidating your private loans into one.
What Does it Mean to Consolidate Student Loans?
Managing several private student loans can be quite challenging if they have different interest rates and repayment terms. By consolidating student loans, you can combine all your loans, allowing you to manage a single monthly payment and interest rate.
Pros and Cons of Consolidating Student Loans
No short blog post can tell anyone whether they should or shouldn’t consolidate their student loans. If you’re considering this option, you have to weigh the pros and cons for yourself. You might also consider discussing the matter with a financial advisor or other such professional.
Potential benefits of consolidating student loans include:
Generally easier debt management and financial management
The possibility of lowering your monthly payment
The possibility of lowering your interest rate
In some instances, being able to release a co-signer from an original loan (although not all lenders allow this)
However, consolidating private student loans could also involve drawbacks, such as:
Potential loss of federal loan benefits if you consolidate federal loans with private loans
Fees you might incur for refinancing a loan
Potentially losing a post-graduation grace period
Possibly remaining in debt for a longer period of time
Be aware that not all lenders allow refinancing if you don’t meet certain criteria. Even if they do allow you to refinance, if you have a low credit score, your rates may not be ideal.
Someone who chooses to consolidate their private student loans should have:
More than one loan they wish to combine together
A good or better credit score
A steady stream of income
The Process of Consolidating Private Student Loans: What You Need to Know
The specifics of consolidating private student loans can vary on a case-by-case basis. Different lenders have different policies regarding how to go about this process.
Generally, though, refinancing your private student loans involves the following:
Researching lenders who offer private student loan consolidation or refinancing loans.
Making a list of lenders with positive reputations.
Providing basic information to lenders so they can perform a preliminary eligibility check.
Comparing the information you receive back from lenders to identify the loan with the best interest rates and other such terms.
Choosing a loan and completing the lender’s application process.
Upon receiving an approval from a lender, reviewing the documents once more before deciding to sign them.
You’ll begin making payments once you sign the agreement documents. Although making one monthly payment is much easier than making several, you should still consider automating payments so there’s no chance of missing one.
The main point to remember is that consolidating private student loans isn’t necessarily the right step for everyone. For instance, if you have a weak credit score, you may not be eligible for refinancing.
On the other hand, if your credit is strong and you have a consistent source of income, you might benefit from consolidating your loans. At the very least, doing so could simplify an otherwise stressful monthly chore.
Debt Legal Defense is a San Antonio law firm offering student loan defense and related services.
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