What to know about student loan consolidation


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Federal student loan consolidation can simplify the repayment process. (iStock)

When you consolidate federal student loans, you combine multiple student loans into one convenient loan. Consolidation can help simplify the repayment process and may even result in a better interest rate, which can save you money (just be aware that this is not guaranteed).

The CARES Act, which was passed in March 2020 in response to the COVID-19 pandemic, suspended the repayment of federal student loans. This pause has been extended until May 1, 2022. But with that deadline looming, you might want to consider student loan consolidation to simplify your return to reimbursement.

Let’s take a look at how federal student loan consolidation works, the benefits of consolidation, and what to do if you’re a private borrower.

If you have private student loans, you can compare student loan refinance rates in minutes with Credible.

What is student loan consolidation?

Student loan consolidation involves combining multiple federal loans into one direct consolidation loan with a new interest rate that is a weighted average of the interest rates on your other loans. Ideally, you’ll get a lower interest rate than you were paying before, but that may not be the case. Now, instead of having separate student loans to juggle, you can focus on paying off just one.

How does student loan consolidation work?

Managing multiple federal student loan repayments can be stressful. Consolidating them into one loan with one monthly payment can simplify the repayment process.

When it comes to federal student loan consolidation, you can get a longer repayment period, which can lower your monthly payments. You also have the option of converting any variable rate to a fixed interest rate loan, which means your rate will never change. Additionally, if you consolidate other types of federal loans in addition to direct loans, you can access additional income-based repayment plans and loan forgiveness programs, such as public.

Consolidation vs Refinancing of Student Loans

The term “consolidation” only refers to federal student loans, and although you can sometimes get a lower interest rate through consolidation, you may not. You cannot consolidate private student loans into a direct consolidation loan.

For private student loans, you can refinance to combine them (or a combination of federal and private loans) through a private lender. With refinancing, the lender will pay off your current loans and give you a new loan, which may come with a new repayment term and, ideally, a lower interest rate.

While you can refinance a combination of private and federal student loansyou should think carefully before refinancing federal loans into a private loan – if you do, you will lose access to federal protections such as forbearance and loan forgiveness.

What to Know About Consolidating Federal Student Loans

If you only have federal student loans, consider whether you qualify to consolidate them and if it’s the right decision for you.

When to Consider Federal Student Loan Consolidation

If you have multiple federal student loans from different loan servicers, consolidating them into one loan can make it easier to manage your debt. If you’re struggling to repay your federal student loans, getting a longer repayment term through consolidation can lighten your financial burden each month. But you’ll likely pay more interest in exchange for extending your repayment period.

Eligibility for Federal Student Loan Consolidation

To benefit from the federal student loan consolidation, you must have federal student loans in repayment or in grace period. You generally cannot consolidate an existing direct consolidation loan, but you can if you are able to add an additional qualifying loan into the consolidation.

If you have a defaulted loan and want to consolidate it, you must first make three consecutive monthly loan payments or agree to repay your new direct consolidation loan under one of four focused repayment plans. on income. If your wages are garnished or collected due to a court order due to a delinquent loan, you cannot consolidate the loan until the wage garnishment is lifted or the judgment against you was not canceled.

Types of Loans Eligible for Federal Student Loan Consolidation

Most federal (not private) student loans are eligible for consolidation, including:

  • Subsidized direct loans
  • Direct unsubsidized loans
  • Direct Loans PLUS
  • FFEL Consolidation Loans and Direct Consolidation Loans (only under certain conditions)
  • Federal Subsidized Stafford Loans
  • Unsubsidized and Unsubsidized Federal Stafford Loans
  • PLUS loans from the Federal Family Education Loans Program (FFEL)
  • Additional Student Loans
  • Perkins Federal Loans
  • Nursing Student Loans
  • Nursing College Loans
  • Health Education Loans
  • Student loans for health professions
  • Loans for disadvantaged students
  • Federal Insured Student Loans
  • Guaranteed student loans
  • Direct National Student Loans
  • National Defense Student Loans
  • Parent loans for undergraduate students
  • Auxiliary loans to help students

How long does it take to consolidate federal student loans?

The federal student loan consolidation process is quite quick. You must complete the application in one session, which usually takes less than 30 minutes. Once your direct consolidation loan is disbursed, you will start paying it back within 60 days. Your loan officer will tell you your first due date and you will make payments according to the repayment plan you chose when you applied for your direct consolidation loan.

What to know about refinancing private student loans

Although you may not be able to consolidate private student loans into a direct consolidation loan, you do have the option of refinancing them through a private lender, which may offer similar benefits to student loan consolidation. federal. You can also refinance if you have a combination of federal and private student loans and want to combine them into one loan.

The private lender will pay off all your existing student loans and give you a new one with new terms and a new interest rate. Lenders will consider your credit score, income, work history and other factors to determine the rate and terms to offer you.

Credible, it’s easy to compare student loan refinance rates from various lenders.

When to consider refinancing a private student loan

Not sure if refinance your private student loans is the right way to go? Here are some situations where refinancing a private student loan may be right for you:

  • You have good credit. If you have a good credit score, you can potentially qualify for a lower interest rate than you currently have, which can save you money over the term of the loan.
  • You are not satisfied with your repayment period. Refinancing can give you the flexibility to choose a repayment period that better suits your needs. You can opt for a longer repayment period to lower your monthly payments, or refinance for a shorter term to save money on interest.
  • You are a parent who has taken out loans on behalf of your child. When you refinance, you may be able to transfer the loans you took out to your child, as long as you both agree.

Keep in mind that if you plan to refinance a combination of private and federal student loans, you will lose the federal protections useful for any federal student loan. For example, if you refinance a federal student loan into a private loan, you will lose access to temporary loan payment relief during approved periods, such as deferment or forbearance. You will also lose access to any income-based repayment plans or loan forgiveness programs.

Eligibility for refinancing a private student loan

When you apply for private student loan refinance, lenders consider factors such as your income, work history, and credit score. Each lender has their own unique qualification standards, so you’ll need to do your research and find the best private lender for your unique situation.

Types of Loans Eligible for Private Student Loan Refinancing

  • Private student loans — You can refinance to combine private student loans through a private lender.
  • Federal student loans — You can also refinance any federal student loan into a private loan.

How long does it take to refinance private student loans?

The time it takes to apply and get approved private student loan refinance depends on the lender, but you can expect the process to go quite quickly. You may be able to complete an online application in one sitting.

Visit Credible for compare student loan refinance rates from multiple lenders, all in one place.