“I keep forgetting to make my payments.”
“I can’t afford my student loan payments.”
“I can’t remember who my loan servicer is.”
Do any of these phrases sound familiar to you? According to Experian, the average graduate has $35,620 in student loan debt. With so much debt, you likely have multiple loans with several different loan servicers and monthly payments to remember. That’s a recipe for disaster; you can easily miss payments or lose track of your loans. But if you consolidate private student loans, your problems could be solved.
You may have heard about student loan consolidation — where all your loans are combined — and thought it sounded like a perfect solution. But you may be wondering, can you consolidate private student loans? Or is there a way to consolidate and refinance private student loans?
Here’s what you need to know about private student loan consolidation and the best way to consolidate private student loans.
What is student loan consolidation?
Student loan consolidation is the process of combining your different student loan payments — potentially serviced by different loan servicers — into one new loan with only one servicer.
After consolidating your loans, you’ll just have one payment to think about and pay on time each month. It can be a highly effective and helpful solution for borrowers who took out a variety of student loans — each with varying due dates and amounts to pay every month.
However, student loan consolidation works differently depending on the types of loans you have. If you only have federal student loans, you could pursue federal loan consolidation through the government. If you have both federal and private student loans — or only have private student loans — a smart solution to consolidate your debt would be student loan refinancing. More on each option below.
Student loan consolidation vs. student loan refinancing
While student loan consolidation and student loan refinancing may sound similar, they’re actually very different processes and involve different types of student loans. Here’s what you need to know about student loan consolidation vs refinancing, and how to consolidate private student loans.
Federal student loan consolidation
As the name implies, federal student loan consolidation is an option through the federal government. That means only federal student loans from the U.S. Department of Education can qualify for this type of consolidation — private student loans are not eligible.
With federal loan consolidation, you take out a Direct Consolidation Loan and use it to pay off your current federal loans and combine them into one. Your new interest rate will be based on the weighted average of your existing loans. Going forward, you’ll have just one loan, one loan servicer, and one monthly payment to remember.
There are other perks, too. When you consolidate your loans, you can extend your repayment term and lower your monthly payment. And, you may be able to access programs you were previously ineligible for, such as income-driven repayment plans or loan forgiveness.
That all sounds great, right? Unfortunately, federal loan consolidation isn’t for everyone. Since only federal student loans are eligible for a Direct Consolidation Loan, if you have private student loans and want to consolidate your debt, you’ll need to consider student loan refinancing through a private lender.
Student loan refinancing
If you have private student loans — or a combination of both private and federal loans — they’re ineligible for federal loan consolidation. The best way to consolidate private student loans is through student loan refinancing.
With this strategy, you work with a private lender to take out a loan for the amount of your current debt, including both federal and private student loans.
Like federal loan consolidation, you can choose a new repayment term and lower your monthly payment. But in contrast to consolidation, refinancing your student loans might allow you to lower your interest rate, helping you to save money as you pay off your debt.
When you apply for a federal student loan consolidation, there is no credit check. However, with student loan refinancing, you’ll need to meet certain income and credit criteria to be eligible, so not everyone has the option to refinance their student loans.
4 reasons to refinance private student loans
Private student loan consolidation through refinancing can be a great way to manage your debt. There are five key benefits to consolidating private student loan debt with a refinance loan.
1. You can save money
If you have good credit and a stable income, you could qualify for a lower interest rate when you refinance your private student loans. Over time, that lower rate can help you save hundreds or even thousands of dollars.
For example, let’s say you had $35,000 in student loan debt at 7% interest and a 10-year repayment term. By the end of your repayment term, you would have repaid $48,766; interest charges would cost you $13,766.
But if you refinanced your debt and qualified for a 10-year loan at just 5% interest, your savings could be significant. Over the course of 10 years, you’d repay just $44,548. By taking just a few minutes to refinance your loans, you’d save over $4,200.
|Current Student Loan
|Refinanced Student Loan
If you qualify for a lower interest rate, more of your monthly payment will go toward the principal rather than interest charges. If you keep paying the same monthly payment — rather than paying the minimum required after refinancing — you could pay off your loan months or even years earlier.
For example, let’s say you had the same loans mentioned above. Before refinancing, your monthly payment was $406. After refinancing, you qualified for a 10-year loan at 5% interest, and your monthly payment dropped to $371.
If you kept paying $406 each month instead of the required $371 — just a $35 difference — you would pay off your loans a whole year ahead of schedule. And, you’d save $1,103 in interest charges.
2. You can simplify your student loan payments
To pay for school, you likely had to take out more than one loan. You may have multiple loans from different lenders, making keeping track of your payments and due dates overwhelming.
The consolidation of private student loans can streamline your debt. When you refinance your student loans, they’re combined into one. After that, you’ll have just one monthly payment to make to one loan servicer.
3. You can choose between variable-rate and fixed-rate loans
With student loan refinancing or private student loan consolidation, you have the option of choosing between a fixed-rate loan and a variable-rate loan.
Fixed-rate loans have the same interest rate for the length of your repayment; the interest rate never changes.
Variable-rate loans work differently. Their interest rates typically start off lower than fixed-rate loans, but they fluctuate with market changes.
If you want to pay off your debt aggressively, choosing a variable-rate loan can help you get the lowest interest rate possible and save money.
4. You can pick your own repayment term
When you refinance your loans, you can choose your own repayment term. Terms usually range from five to 20 years in length.
If you’re on a tight budget and have trouble keeping up with your payments, opting for a longer repayment term can give you a more affordable monthly payment. You’ll pay more in interest over time, but it may be worth it to get some breathing room in your budget. When to refinance private student loans
There are a multitude of scenarios that might make refinancing private student loans the right choice for you. One of the most important things is to know your student loan pay off goals so you can decide if refinancing will make sense for your needs.
For example, if you’re looking to lower your private student loan interest rate, pay off your private student loans faster, lower your monthly loan payment, or simply combine your different private loans into one — refinancing could be a great way to make it happen.
However, even if you know you’d like to refinance private student loans, it’s another matter to know when it’s the right time to apply.
Typically, it’s best to refinance when your credit is strong and your income is stable. Those are usually the two most important eligibility factors for getting approved for a refinance while being offered the lowest rates.
By applying when your credit score is high, you’ll give yourself the best chance of qualifying for the best rates — so ultimately you can save the most money on your loan.
You can also keep an eye on the current student loan refinance rates being offered by different private loan companies. Refinance rates can change often and be vary widely among different private lenders. Each lender will usually have a range of rates they’re offering, and the way they calculate the rate provided to each specific applicant will depend on their unique underwriting guidelines.
For example, student loan refinance rates right now have trended to historic lows — making it a smart time to apply and save the most money possible. However, since rates are always changing, it’s usually a smart idea to monitor them regularly to identify a good opportunity for moving forward.
When to refinance private student loans
The private student loan refinancing process is actually quite simple and straightforward. It’s also typically a quick application — taking only about 15 minutes or so to complete.
Once you decide to refinance your private loans, the first step is choosing the company you’d like to apply with. This can be based on rates offered, repayment term options, minimum loan amount, eligibility requirements, customer service reviews, or other unique features from lender to lender. Finding the right lender and refinance loan options to match your own needs will depend on your financial situation and student loan pay off goals.
Figuring out the best refinance option for you is made simple with Purefy’s Compare Rates tool. Rather than browsing for different lenders, visiting a large number of company websites, and reviewing each lender’s pros and cons yourself, we’ve taken care of all the research for you. Simply provide a bit of personal and financial information about yourself, and you can see your refinance offers from multiple top, reputable lenders — all at once in one place.
After checking your refinance offers and determining which is right for you, you can then head straight to that lender’s application on their website. During the application process, you’ll need to provide some basics like personal information, employment details, and information about your current student loans. It’s a good idea to get your student loan statements together before you apply, to further speed up the process.
Once you complete the initial application, your information will be sent to the lender for a decision on whether you’re approved and for which interest rates.
After you are preapproved, the lender will ask you for documents to verify the information you submitted in your application including:
- Loan statements
- Other documentation depending on the lender’s guidelines
When you get approval and decide to finalize your student loan refinance with the exact rate and terms of your choosing, your new lender will then pay off your old loans and set up a new loan in your name.
Refinance private student loans with cosigner
Because student loan refinancing eligibility is typically quite strict, it can be difficult to be approved on your own. And although each lender has their own requirements for approving a refinance application, a strong credit score and steady income are usually necessities for any company.
If you’re credit score isn’t perfect or your income isn’t as high as you’d like, you might not be approved or you may not qualify for a lower rate than you currently have.
But if that’s the case, don’t fret: you can always choose to apply with a cosigner. A cosigner is someone close to you — usually a parent, spouse, relative, or friend — who agrees to sign your refinance application with you. By cosigning, your loved one will be obligated to pay your loan bills if you’re unable to do so — thereby removing some of the financial risk to the lender.
Including a cosigner may give you a higher likelihood of qualifying with a larger number of lenders. Plus, if you’re able to choose a cosigner with a stellar credit history, you could be offered much lower rates.
Private student loan refinance rates
As mentioned above, student loan refinance rates offered by individual private lenders go up and down regularly. Before applying for a student loan refinance, it’s recommended to shop around for different rates so you can get the best deal.
Because each lender offers different rate ranges throughout the year, they’re essentially competing for your loan business. Finding the lowest rate you can qualify for is the key to saving the most money possible.
You might also need to compare each lender’s features and benefits — such as a company’s minimum loan amount or eligibility rules — in order to know if they can work for your refinance situation.
The easiest and fastest way to see and compare your refinancing options is to use Purefy’s Compare Rates tool. After providing some simple information, you can see a variety of rates from a number of top-quality companies in just a few minutes. You can quickly find the best option and move forward with the refinance process — all with no impact to your credit score whatsoever.
Consolidate and refinance private student loans
While private student loans aren’t eligible for federal Direct Consolidation Loans, you can consolidate private student loans through student loan refinancing. By refinancing, you can save money, become debt-free earlier, and even lower your monthly payment.
But remember: if you’re thinking about applying, it’s essential to first find the best way to consolidate private student loans according to your own unique situation.
Simply input some basic information, see the lenders you can qualify with, and compare the rates you’re offered to save the most money you can.
To explore your private student loan consolidation options quickly and easily, use Purefy’s Compare Rates tool to get quotes from top student loan refinancing lenders in just a few minutes.