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Private Loan Consolidation (Student
Loans):
Students
use a variety of methods to finance higher education
including federal and private student loans. After three to
five years of collecting loans, upon graduation and loan
repayment time, there can seem to be an overwhelming volume
of payments in too many directions. Utilizing a loan
consolidation service can help make paying back student
loans both more affordable and more
organized.
Before you begin
any private loan consolidation, you may have other,
better options. Free money is available for college
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Federal Student Loans Vs. Private
Student Loans:
Federal
student loans and private student loans, such as those issued
through a bank or other educational financial institution
cannot typically be joined together in a single
Direct Loan
Consolidation. Largely,
federal loans have a much lower interest rate for
consolidation and have different repayment terms.
Graduates should consolidate federal student loans
together to save money, but separately from private loan
consolidation. Certain federal institutions, such as the
U.S. Department of Education, oversees the federal loan
consolidation options for student loans.
Private loan consolidation is still a viable
option for students carrying various private loans. While the
rates may not be as low as federal consolidation options, many
former students still find loan consolidation to be financially
beneficial. The consolidation of a private loan resets the
terms of the loan, potentially offering a lower interest rate
than one or more of the previous individual loans.
The major reason to consolidate
private student loans is to achieve a single monthly payment,
rather than several payments to different companies. Private
loan rates are set by the lending company, so there are not
typically competing rates. Interest and repayment terms follow
the industry norm and current prime rates. Instead, graduates
looking to consolidate private loans can pursue one of several
useful options.
Private Loan
Consolidation Options:
There are three main ways that consolidating private
student loans can be financially helpful. Graduates
can:
Improve credit scores to reduce the current interest
rate.
Interest rates for private loans are based on credit scores
of the borrower and/or co-signer. If your credit score has
improved by more than 50 points since you originated the
loan, you can ask about reducing the interest rate on the
current loan due to this better credit score. Your credit
score improves by consistently paying bills on time for
longer than 12 months, getting a job that bumps your income
to a higher rate, thus reducing your income to debt ratio,
and paying off smaller outstanding debts on credit cards or
other bills.
Additionally, if your loans are held with multiple
companies, consolidating them to the one with the lowest
interest rate saves you money over the long run. With an
improved credit score you may be able to ask the company
with a higher interest rate to lower it to match another
company's rate, rather than lose your business to the other
company.
Use a
home equity loan to repay the education
loan:
Home equity loans are fixed-rate loans that often have interest
rates similar to that of private student loans. If your student
loan has a variable interest rate which will fluctuate every
quarter as the rates change, setting up a home equity loan as a
new loan to pay off your other education loans may allow you to
"consolidate" in a different way. Effectively, this is trading
one kind of loan for another, but getting a fixed rate can
improve your overall payments.
Work with an education lender for consolidation terms.
Several private companies offer private student loan
consolidation. Each company has its own terms, including
origination fees that range from 0% to 5%, 10 to 30-year
repayment terms, and minimum loan amounts to consolidate. When
researching which education lender to use for consolidating
your private loans, be sure to ask whether:
1. the consolidated loan has a variable interest rate or fixed
interest rate
2. there are any fees associated with the loan (origination
fees, service fees)
3. there are penalties for prepayment (there should not be--all
education loans, federal and private allow for prepayment,
overpayments to reduce principal, free of charge).
Education lenders such as:
Wells Fargo Private
Consolidation Loan works with loans at a minimum of $5000 up to
$40,000 or $100,000 depending on the person's credit.
Student Loan
Network Private Loan Consolidation has a $10,000 loan
minimum to $300,000 maximum.
NextStudent Private Consolidation Loan offers a $7500 minimum
up to $300,000 loan maximum.
Chase Private
Consolidation Loan has a $7500 minimum up to $150,000
maximum.
All four are reputable companies that have diverse terms to fit
various private loan consolidation needs. Students nearing
graduation or recent graduates can utilize these services to
find out if private loan consolidation will be a useful
financial strategy.
Private loan consolidation is a way to save money on repaying
school loans. If you've already been paying down student loans,
but still have a large amount to go, consolidating the loans
may help lower your monthly payments or interest rates, saving
some money in loan repayment.
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