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Consolidate Student Loans the Easy Way

Here's Your Ultimate Guide to Student Loan Consolidation
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If you’re like most American graduates, you probably have student debt from loans that you took out to cover your study expenses. The hard reality is that university level education and training is getting much more expensive – getting student loans is often the only way to make studying a degree possible. But making the decision to take on a large amount of debt at 18 can be a decision that you may not be ready for. Every year, students graduate with large amounts of student debt and little chance of paying it back on time. This isn’t helped by the fact that many lenders don’t wait for students to get a job to be begin charging them interest and requesting payments.

In fact, it is now estimated that the total amount of outstanding student debt in the United States currently stands at $1.2 trillion dollars. In 2014, over 7 million student debtors were in default. But there are ways to try and prevent yourself from approaching a situation that you can’t afford. If you’ve already taken out large amounts of debt, you may want to consider a process called ‘debt consolidation’. Debt consolidation isn’t a process reserved exclusively for students, many Americans with debt problems consolidate their debts ever year. The process requires you to take out an additional loan at a lower interest rate, and then pay off your remaining loans with this capital. You then owe your new lender the total amount of outstanding debt at a lower rate.

This is a guide to student loan consolidation and how it may be of help to you. It will provide you with all the information you need to get your consolidation started. In addition, it will provide reviews of some of the most popular student loan consolidation companies on the market.

The first step in getting your student loans consolidated starts with assessing which types of loans you have and what you are allowed to do with them. The options available to you will depend entirely on the type of student loans that you have.

Federal Consolidation

Private Consolidation

Federal loan consolidation doesn’t provide that much of an advantage for people who are trying to save money – it simply consolidates your loans to provide an easier to understand payment structure. You do this directly through the Department of Education.

Private student loan consolidation is the type of consolidation that we focus on for the majority of this guide. This is because you can save a lot of money by consolidating your private student loans and there are various avenues to consider. With private student loan consolidation, you contact a consolidation lender to refinance your current debt. This works well for people who have multiple loans, but people who have a single student loan choose to refinance as well. If done correct, refinancing your student debt can save you thousands of dollars as well as shave years off your payment term.

Federal Consolidation

Federal loan consolidation doesn’t provide that much of an advantage for people who are trying to save money – it simply consolidates your loans to provide an easier to understand payment structure. You do this directly through the Department of Education.

Private Consolidation

Private student loan consolidation is the type of consolidation that we focus on for the majority of this guide. This is because you can save a lot of money by consolidating your private student loans and there are various avenues to consider. With private student loan consolidation, you contact a consolidation lender to refinance your current debt. This works well for people who have multiple loans, but people who have a single student loan choose to refinance as well. If done correct, refinancing your student debt can save you thousands of dollars as well as shave years off your payment term.

Consolidation

Refinancing

Consolidation vs Refinancing

If you browse the internet you may find a lot of conflicting information on what consolidation and refinancing are. Many people will refer to consolidation as simply moving a series of loans into a single payment – as mentioned above for the federal student loan example. Refinancing is then referred to as the process of paying off your loan and using a new interest rate to reduce your tax burden. But you can refinance and consolidate your loans at the same time, meaning no single term is entirely correct. If you see these terms used by lenders or other financial advisors, make sure to clarify if they’re referring to consolidation without refinancing or with refinancing. And remember: you can refinance a single loan, you don’t need to be merging multiple loans to a single payment to save money.

Loan Consolidation: The Process

Things to Consider

You should start the loan consolidation process by determining if you are overpaying on interest. Many private loan providers offer extortionate rates for student loans. This is largely due to the fact that they are unsecured, but is also a product of how high the demand for attending university is. In most cases, you will be overpaying for at least one of the loans you have taken out. This may also include a student credit card that you had while you were studying. You can consolidate student loans and credit cards into the same payment when you refinance.

Because of the risky nature involved in lending a highly indebted person money, private student loans are typically charged high interest rates. This is why you are able to save considerable money through refinancing and consolidating.

Contact a Lender

Contact a lender and fill out an application, include all of the debt that you’re aiming to consolidate. They will be able to provide you with an answer relatively quickly. If you’re approved, you will use the capital they give you to pay off the outstanding loans in full and will then only be a debtor to your new lender.

You should make sure to pay down as much separate debt as possible prior to apply for debt consolidation. Student loan consolidation with bad credit is hard to get, paying off credit card balances and ensuring there are no mistakes on your credit report will go a long way in helping you get approved for consolidation.

The Top Student Consolidation/Refinancing Companies on the Market

Choosing the right student loan consolidation company is the most important part of consolidating your loan. This may seem overblown, but the difference between a good and bad experience consolidating debt is normally down to the lender that you choose to work with. This is why it’s important to overview a wide variety of lenders and compare the quotes that they offer you. You will find that lenders have different offers depending on your exact situation, so you shouldn’t view a generic quote as what you will be offered by the lender. You should also make sure to read customer reviews of each of the lenders you are considering, this is often the best indicator of how satisfied you’ll be with your experience. Information on the best companies available is provided below:

CommonBond is a lender that provides a marketplace for both borrowers and lenders. Lenders are investors that are looking to make a return on their investment through the funding of financial products. The company is headquartered in New York City. Their interest rates offered are between 2.79% and 6.74%. They offer both fixed and variable rates as well as a variety of terms that can be catered to meet your financial needs. They provide a year of unemployment protection, which takes the weight off your shoulders regarding payments if you lose your job. You must be borrowing at least $5,000 to be eligible for their services – they have a maximum borrowing amount of $500,000. They have some awesome customized loan agreements depending on the type of degree you’ve done – make sure to check out their different options before applying.

LendKey is another lending marketplace that has been proving their value in the industry for the past decade – they were founded in 2007. They provide a platform for small credit unions and community lenders to lend money to students looking to refinance. They also have other financial products available but student loan refinancing is their main industry. They have slightly tighter regulations for student loan lending than other lenders mentioned in this article. Firstly, they have a higher minimum — $7,500. Secondly, they have a maximum of $125,000 that can be borrowed for undergraduates and $250,000 that can be borrowed by postgraduates. On the other hand, they have 18 months of unemployment protection, making them one of the leaders in the protection category.

SoFi is an awesome lender that was founded in 2011 in San Francisco. Originally, they actually connected alumni of universities with graduates in an effort to create a unique lender to borrower dynamic. In recent years, they have expanded rapidly and now offer financing in the form of mortgages and a range of other financial products. In terms of interest rates, SoFi’s average rate is well below 6%, with many borrowers able to refinance at below 3% APR. You must borrow a minimum of $5,000, while there is no upper limit on the loans that you can consolidate. In addition, they provide you with up to 12 months of unemployment protection so that if you lose your job you aren’t faced with defaulting on your loan.

Laurel Road is one of the largest student consolidation companies on the market. They have financed well over $2 billion in student loans. In addition, they service all 50 states in the country. They’re actually part of a larger financial services company – Darien Rowayton Bank. Unlike some of the other lenders mentioned in this article, Laurel Road is a direct lender – they aren’t simply a market place for investors or other lenders to provide you with capital. This means that they have full control over the rates that they offer you and the terms that you’re granted.

Citizens Bank is a part of Citizens Financial Group – a financial services company that is operated out of Providence, Rhode Island. They work with clients in all 50 states of the country, making them accessible to graduates of any region. They are on the higher end of borrowing minimums, you need to be consolidating at least $10,000 to work with them. They also have unemployment protection for 12 months. They’re perfect for someone who wants the security of a larger online lender when trying to find a student debt consolidator.

Earnest is another one of the lenders that we recommend. Like many of the lenders in this article, they have a $5000 minimum borrow amount. Earnest uses technology to try and reduce the overall cost of finance. They’ve got an awesome app that is extremely user-friendly – if you like having a functional lender with plenty of online capabilities, this is one of your best choices. They also provide 12 months of unemployment assistance which will ensure that you don’t have to default on your loan if you lose your job.

Tips on Choosing the Right Lender

Finding the right refinancing company is the best way to ensure that you have a positive experience consolidating your debt. Never use a lender that doesn’t have an established presence online – you don’t want to be in a position where someone takes advantage of your naivety. All the companies that we mention in this review section have unemployment protection – this means that if you lose your job, they have a grace period where you are not required to be paying back your student loans. This is a crucial feature that you should expect from a student loan refinancing company – not having this benefit could result in you defaulting on your debt if you lose your job.

Tips on Choosing the Right Lender

Finding the right refinancing company is the best way to ensure that you have a positive experience consolidating your debt. Never use a lender that doesn’t have an established presence online – you don’t want to be in a position where someone takes advantage of your naivety. All the companies that we mention in this review section have unemployment protection – this means that if you lose your job, they have a grace period where you are not required to be paying back your student loans. This is a crucial feature that you should expect from a student loan refinancing company – not having this benefit could result in you defaulting on your debt if you lose your job.

Advantages of Consolidating

Why consolidate student loans? After reading this guide you probably have a pretty decent idea of the various advantages associated with consolidating your student debt. But having a full list of benefits and drawbacks is a better way to analyze whether the process is something that you want to undertake. Below is a list of the advantages of consolidating:

Single Payment

Instead of having to manage multiple payments with different payment terms and due dates, you can combine all of this into one easy-to-pay payment that is given to a single source. In addition, most lenders allow you to set up a direct debit so you’ll never have to think about paying manually again.

Reduction in Payments

If you are able to reduce the interest rate that you’re paying, the payments that you are responsible for paying will reduce dramatically.

Reduction in Term

If you can’t wait to stop having to make loan payments, consolidating and refinancing will most likely allow you to shave months, or even years, off your term time. This is a great incentive for those who want to get out of debt quicker.

Improve Credit Score

Refinancing may appear to dent your credit at first, as it is a new credit inquiry on your report, but over the long-term it is most likely much better for your credit. This is because your risk of making late payments, defaulting, or running up other debts is greatly reduced.

Customizing Your Terms

You can also use consolidation to customize your lending terms. For example, you can extend or reduce your terms, change to variable or fixed rate, or do a variety of other things to allow your lending to suite you better.

Disadvantages of Consolidating

While there are the very obvious advantages to consolidating, or refinancing your debt, there are also some drawbacks. Below are the disadvantages of consolidating your debt:

Inquiries

Having a series of inquiries on your credit report from lenders checking if you’re viable will have a negative impact on your reputation as a borrower. This is an even bigger problem for people who may have to create multiple applications to get approved.

Hidden Fees

Some predatory lenders try and offer good interest rates upfront to lure in borrowers, this can then result in multiple fees or interest rate changes happening down the line – this is why it’s important to be fully aware of your borrowing agreement.

Federal Consolidation: An In-Depth Take

So, you may be wondering – can you consolidate federal student loans? Earlier we mentioned how federal consolidation didn’t actually reduce your interest rate and therefore wasn’t as advantageous as other forms of refinancing. While this is true, it’s still important to give an overview of the process and outline some things you should look out for once you decide to consolidate. Federal consolidation can be done entirely through contacting the Department of Education – this is the best way to consolidate student loans. In recent years, a number of scams have arisen in which companies will come forward to ask past students if they’d like to consolidate their debt into a single payment – they will then charge a fee for these services. This should be entirely avoided; the Department of Education warns that these are scams that look to charge graduates fees for what is a free service.

In addition, you may be wondering what happens if all your different federal loans have different interest rates. How could a consolidated loan carry the same interest rate after multiple interest rates are merged? The interest rates on your loans are averaged out according to their weight (how much debt under each rate) and then a new combined interest rate is given to your balance. This ensures you pay back the same amount of money that you would if you never merged the loans together. The problem is that this can actually end up costing you more money. Because your term time will likely increase, the average interest rate will be charged over a longer period of time, which will mean that you could end up spending more money over the term of your loan. Again, federal loan consolidation is done for convenience, not saving money. You may be wondering how to consolidate student loans with bad credit, but with federal student loans your credit score doesn’t come into play.

Federal Student Loans: The Process

If you’re wondering how to consolidate federal student loans, follow this easy-to-use guide on the process:

www.studentloans.gov

Head to government website www.studentloans.gov a click on “Complete a Consolidation Loan Application and Promissory Note” – you’ll find this on the repayment and consolidation tab. Next, choose the loans you want to consolidate. After this, you will be prompted to choose a student loan servicer – a third party company responsible for managing your loan. 

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Choose a Plan

Next you will be able to pick a repayment plan and term, it is here that you will see all the details regarding your new agreement. Once you have ensured this is the consolidation agreement you want, you agree to the terms and submit the application.

Make sure that you do thorough research on the different loans you have and their terms. Consolidating some federal student loans will result in you forfeiting certain benefits associated with them – this could end up leaving you worse off.

Verdict

After reading this guide, you should have a firm understanding of how to consolidate both federal and private student loans. We’ve provided you with a comprehensive list of the best banks to consolidate student loans with, along with some awesome online lenders as well. In addition, we’ve given you clear explanations of the differences between federal and private student loans – and how the processes to consolidate them are not the same.

Also, head online and use a consolidate student loan calculator to get a better idea of whether or not you will be able to benefit from consolidating some of your current loan agreements. There are plenty of different calculators to choose from, some of which are provided directly by lenders themselves. After all of this, you may still be asking yourself: should I consolidate my student loans? The answer to this question depends on the individual situation and your current interest burden. If you can save a lot of money, the answer is typically yes.

One of the unfortunate things about the consolidation industry is the amount of predatory lenders and firms that are looking to take advantage of students attempting to escape debt. These groups have a firm understanding that you will do what it takes to help reduce the severity of your current situation, and they prey on your desires. Make sure that you always cross reference every company that you decide to work with, you don’t want to end up being ripped off. Check online reviews and ask for verifiable testimonials. In addition, make sure the services they are providing you for a fee aren’t free elsewhere. If you take the necessary precautions, debt consolidation and refinancing can be a truly rewarding experience.