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Student Loan Consolidation

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Understanding student loan consolidation

Are you tired of making multiple student loan payments each and every month? At LendingTree, we understand it can be difficult and time-consuming to keep track of all your different student loan payments. A student loan consolidation can help by combining all of your loans into a single loan with one interest rate and one monthly payment.

Both federal and private student loans can be consolidated in order to make your loans less complicated and more convenient. Parents can consolidate loans taken on the student’s behalf, but they cannot consolidate with the student into a single consolidation loan. To determine if consolidation is right for you estimate your savings with our student loan consolidation calculator.

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Federal student loan consolidation

What is federal loan consolidation?

If you have multiple student loans from the federal government, then it’s likely you make multiple payments to various lenders. The result is more payments to keep track of and it’s easier to forget a payment. A Direct Consolidation Loan allows you to consolidate your student loans into a single loan, with a single monthly payment.

Interest rates and terms

The interest rate on your federal consolidated student loan is fixed. Like a fixed rate mortgage, this means your interest rate stays the same, keeping your monthly payment amount consistent. The loan term will be 30 years, which is likely to reduce your monthly payment amount by stretching out the loan term.

Should I consolidate my federal student loans?

If you want a lower monthly loan payment, consolidation will likely do that for you. If you have difficulty keeping track of all your student loans, and as a consequence, find yourself missing payments, consolidation will simply all that.

However, if you’re concerned about the impact on your borrower benefits, consider reevaluating your budget and determine how you can continue to make your existing payments. Deferment or forbearance are always options for short-term relief from payment difficulties. There are also a few refinancing options you may consider.

Federal student loan consolidation pros and cons

Benefits of Consolidating Federal Student Loans

The interest rate you pay will be the weighted average of the interest rates on all your loans being consolidated, rounded up to the nearest 1/8 of a percent. Therefore, if you have some loans with a significantly higher interest rate, it could be beneficial to consolidate.

Other benefits of federal student loan consolidation may include:

  • Lower monthly payment
  • Simplified loan repayment
  • 30-year repayment
  • Access to alternate payment plans
  • Ability to switch loans with a variable interest rate to a fixed interest rate

Drawbacks of Federal Consolidation

Potential loss of borrower benefits is the primary drawback of consolidating your federal student loans, this being the number one concern for most students.

Borrower benefits that could be lost include:

  • Loss of interest rate discounts
  • Loss of principal rebates
  • Loss of loan cancellation benefits

Other drawbacks include paying more interest. Because you’re stretching your payments out over 30 years, the amount of interest you pay over the life of the loan will be greater, even though your monthly payment may be less.

Private student loan consolidation

What is private student loan consolidation?

Like your federal student loans, private student loans may be consolidated into a single monthly payment. This is done through a private lender such as a bank or credit union.

Interest rates and terms

Unlike federal loan consolidation, private student loans often come with a variable interest rate when consolidated. This means your monthly payments will fluctuate as interest rates go up or down. Private student loans can usually be paid off over a 10-25 year term.

Benefits of consolidating private student loans

Based on your creditworthiness, lenders may offer you a reduced interest rate on your consolidated private loans. This can save you money over the life of the loan. Having a single monthly payment also makes it easier to keep track of your payments.

Drawbacks of private loan consolidation

Private student loans often come with a variable interest rate, meaning your monthly payment amount can change.

When to consider private student loan consolidation

If you can get a better deal on your interest rate, then consolidating your student loans will likely save you money over the life of the loan. Since interest rates are often dependent on a borrower’s credit score, private consolidation may be something to consider if your current credit score is higher than when you initially took out your student loan.

Can you consolidate federal and private loans together?

When we’re talking about a Direct Consolidation Loan, the answer is no. However, there are some options for refinancing or consolidating your federal and private student loans. These are private lenders who will consolidate all your loans. If this is something you’re interested in, LendingTree can connect you with a lender to refinance your student loans. But be aware–once you do so, you’ll lose your borrower benefits on your federal student loans. These may include repayment options, like income-based repayment, as well as student loan forgiveness options.

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Student loan debt relief alternatives

There are five main options for student loan debt relief. These options include loan consolidation through a private lender or the federal student loan consolidation program, student loan refinancing through private lenders, deferment or forbearance of loans for financial hardship, and loans that are forgiven, canceled, or discharged. There are also seven different education loan repayment plans, which are based on the borrower’s personal financial circumstances.

Make sure you carefully research all your options, and weigh the pros and cons before taking action. Generally, these alternatives are better than defaulting on your student loans.