Many students and graduates take out multiple loans. Higher education isn’t cheap! If you’re in this category, you’ve probably considered combining all those loans into one-a common process known as either student loan consolidation or student loan refinancing.
Consolidation is the process of combining several federal student loans into one consolidation loan that retains all the benefits of federal loans: flexible repayment options if you lose your job or go back to school and forgiveness programs after years of service in certain qualifying fields.
Fed up with your student loans?
Refinancing could save you thousands. See if it’s right for you.
Refinancing is the process of taking out a new private student loan to pay off and combine multiple private and/or federal loans. Refinancing may give you more options to reduce your monthly payment and interest rate, but refinancing federal loans can eliminate some of the benefits of federal loans.
Here, we’re going to talk mostly about when you might want to pursue federal student loan consolidation, but many of the rules apply to refinancing, too.
How does consolidation work? You take out a new loan, which then pays the balance on all your federal loans, even if they have different servicers (such as NelNet or Navient) – the companies to which you send your payments. You’re then responsible for paying off the new balance, known as a Direct Consolidation Loan, from a single lender. Loans combined into a Direct Consolidation Loan can’t be removed.
Fewer payments every month may sound like a no-brainer, but consolidation’s not best for everyone. Do you meet the conditions below? If so, you may want to consolidate.
When student loan consolidation makes sense
- You’re not in school currently, or you’re enrolled less than part-time.
- Your loans are not in default.
- You’re either making loan payments or in the loan isin a grace period.
- Your loans are in your name, not in your parents’ names or anyone else’s; you cannot consolidate your loans with your spouse’s loans.
Also important to know: you can’t consolidate private student loans with federal student loans. If you want to roll private and student loans together, you’ll need to explore refinancing your student loans. And depending on your lender, you may need to meet a minimum balance. (The Federal Loan Consolidation Program doesn’t require a minimum.)
You want to reduce your monthly payments
If short-term savings are your priority, consolidation is worth a look. You can lower your monthly payments and increase your repayment period.
Lower monthly amounts, though, mean you pay more over the loan’s life. Compare your current monthly payments to what the payments would be if you consolidated. Keep in mind: the longer your repayment period, the more interest you’ll pay.
If you want to consider refinancing, Money Under 30 partner Credible offers a free and easy way to see the loan rates and monthly payments you would qualify for from selected lenders – there’s no obligation or impact to your credit.