Consolidating Private Student Loans
Lower Monthly Payments and Simplify School Loan Repayment
Jun 15, 2009
The stress of starting out in a new career is worsened when student loan payments demand a good portion of the graduate's income. Consolidating all private student loans into one allows borrowers to make one monthly payment, rather than several to different accounts.
Private student loan consolidation can offer several other benefits, depending on the graduate's situation.
Graduates May Qualify for Rate Reductions
After graduation, borrowers may qualify for a better interest rate than when the private loan was issued. This is especially true one to two years into a stable career, or if the borrower can find a co-signer with an excellent credit rating.
The new lender may offer a lower APR, or Annual Percentage Rate, for the consolidated loan. Depending on the interest rates for the initial loans, this can add up to thousands of dollars saved in interest over the term of the new consolidated loan.
Consolidating Simplifies Loan Repayment
Juggling four or five different student loan payments every month can add unnecessary stress. It can also be difficult to keep track of the principle and interest values of each loan. Borrowers who consolidate can choose a term from five to twenty-five years (or thirty, for graduate students), which rolls all of the loans into the new term. Graduates are usually able to negotiate a monthly payment lower than they had paid for all of the loans individually.
Private Student Loan Consolidation Tips
Consolidating student loans is an important decision. Compare several lenders and the terms of the new loan before signing on with any company. While a good deal of information is available online, internet tools and calculators should be used for preliminary research only. Contact three to five companies to discuss the particulars and get a quote in writing before deciding on a lender.
Be sure to ask about the following:
- Prepayment Penalties- Are excess payments applied to interest only, or to the loan principle? Making additional payments when able can help reduce the life of the loan and save interest.
- Deferments- Can the repayment start date be deferred in any circumstance? A period of non-repayment can help graduates get established and on their feet before they have to start making monthly payments.
- Fees- Are there any application, origination or late payment fees?
- Minimum requirements- Is there a minimum principle amount required to do business with the lender?
Other Important School Loan Repayment Information
During the period of negotiating a consolidated loan, keep all existing loan payments up to date to avoid negatively affecting credit eligibility or interest rates. Government student loans cannot be consolidated with private loans. However, consolidating all government loans together, then doing the same with all private loans, reduces payments to two monthly installments and still offers interest savings benefits.
Recipients of Federal student loans may qualify for loan forgiveness if they are entering a public service career. Visit Federal Student Aid for more information.
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