Debt consolidation isn’t a priority for many college-aged borrowers. Between college acceptances, making the big move, and handling matters like tuition and room and board, financial topics like debt consolidation often sit on the back-burner for far too long — even well past graduation. But as the years pass and borrowers begin accumulating more debt through various lenders, debt consolidation of student loans suddenly becomes a wise financial move to consider.
Private student loan consolidation is also referred to as student loan refinancing. While there are other options, such as a Direct Consolidation Loan, which is offered by the federal government (and only for federal loans), student loan refinancing is generally a solid option for consolidating both federal and private loans — while taking advantage of other key benefits like a lower interest rate. Many borrowers choose this as a means of simplifying their finances and clearing debt more quickly.
Can you consolidate private student loans? Absolutely! Doing this can put you one step closer to freeing yourself from the confines of debt. But learning how to consolidate private student loans entails research.
Private student loan consolidation carries many benefits, and borrowers choose to consolidate their debt for a variety of reasons. Maybe you’re making enough money and want to pay off your debt as soon as possible. Perhaps you’re not making enough money and are hoping to lower your monthly payments to an amount that is more manageable for your current lifestyle. These are both valid reasons for wanting to refinance your student loans.
Here are a few ways refinancing can save you time and money in the long run.
Saving money on interest
It’s no surprise that some student loans can carry crazy high interest rates. While many students have little choice but to accept these terms when shopping around for college loans, that doesn’t mean you’re forced to stick with these terms forever. By refinancing your student loans, you have a greater shot of a lower interest rate that, over time, will save you big bucks. Refinancing pricey loans with a private lender may help improve your financial standing like few other methods can. You consolidate private student loans to simplify your finances, but there are other things you can do to support a healthier financial life, too. Don’t forget to keep this in mind.
Shortening your repayment term
Paying off debt is a dream for many adults, but for a large number of Americans, debt accumulates as their families grow. Between new cars, new houses, children, and vacations, it seems accumulating debt is inescapable. You can, however, make it a point to pay off your student loan debt sooner rather than later. By clearing your student debt more quickly, you can put your hard-earned money toward other expenses. This can be a great first step toward a debt-free life. Plus, by ditching debt sooner, you’ll be rewarded with much less total interest accrued — allowing you to save substantially on your loans.
How to consolidate private student loans
Once you’ve made the financial decision to consolidate your student debt, it’s important that you really explore your options.
Typically, student loan borrowers have two options when consolidating student loan debt:
- The federal government
- Private lenders
However, keep in mind that the federal government will only consolidate federal student loans. It can be an effective option for those loans, but if you want to consolidate private loans as well, you’re only option is to refinance with a private lender.
Federal student loan consolidation
Students dealing with multiple federal loans have the option of consolidating through the government at a fixed rate. The interest rate you’ll pay will be determined by the average rate of your loans. The best part? Consolidating debt through the federal government comes at no additional cost to you. This is a great option for borrowers hoping to simplify their financial situation. Instead of multiple student loan payments, you’ll be dealing with only one. The downside is that you’re unlikely to save any money on interest with this method.
Private student loan consolidation
While federal loan consolidation is a wise option for borrowers dealing with only federal loans to repay, private lenders can offer consolidation options for both private and federal loans — and they may make more sense for your financial situation.
When dealing with private lenders, you’ll need to refinance your student loans, which is also referred to as private student loan consolidation. There are some serious additional benefits to this type of refinancing outside of simply combing debt including:
- Lower interest rates to save more money, for those who may qualify
- Shorter repayment terms to ditch debt fast — saving you even more on total interest
- Longer repayment terms to lower your monthly payments and provide more room in your monthly budget, if money is tight
- The option to remove a cosigner from your current loans
- The ability to get a new lender with more reliable support and a better customer experience
- The chance to select either a variable or fixed interest rate
While it can be tempting (and a lot easier!) to accept the first offer with a decent rate that comes your way, you may be able to save hundreds or even thousands over time if you shop around. Evaluating your options is important if you’re hoping to get the best possible deal on refinancing terms. There’s no such thing as too much research!
There are a wide variety of tools available online to help you compare refinancing rates. Our Compare Rates tool can help you compare rates from top refinance companies and determine which option is best for you — saving you plenty of research time with just one quick form. Plus, there’s no impact to your credit whatsoever.
Whether your goal is to get a lower monthly payment, eliminate the need to pay so many different lenders per month, or to pay off your loan in a shorter time span, refinancing tools are an awesome way to dive deep into your options.
Applying for student loan consolidation
Now that you’ve narrowed down your options and have chosen a consolidation plan that works well for you, the time has come to apply. Your application will be based on factors such as your credit score, current debt, and co-signer status (if you have one). If you currently have a low credit score, a co-signer may be necessary in order to secure a lower rate. All of these things will determine whether your application is approved.
Taking steps to simplify your debt is one of the best things you can do to improve your financial health. Student debt consolidation is just one of the many tools borrowers can use to create a hopeful financial future. And with so many refinancing resources available to help you make wise financial decisions, there’s no reason not to get started today. By taking charge of your financial health sooner rather than later, you leave room for all the great opportunities that come your way.