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Tips: How to Consolidate Student Loans

Updated on September 28, 2010


If you're going to be graduating soon, it is important to start thinking about consolidating your student loans. The school you are attending will give out information regarding how to consolidate your loan. Unfortunately most of the time this information will not be enough. The best thing to do is start doing your own research and find out how loans can be consolidated in a proper way. Until 2007 students who had taken out loans were faced by various loan consolidating companies. At this time the federal government had banned consolidating companies from approaching students with offers. At first this may seem like an unfair deal. But this is actually a good thing for students. The reason is these companies are more likely to give you a good deal on your loan consolidation.

In a nutshell, loan consolidation is when you combine all of your loans into one single loan. This way you pay back only on loan. It is not only the federal loans but with private loans also you can combine all of them into one monthly payment. This includes Federal Stafford loan, Perkins loan and PLUS loan. Sometimes the loan company will allow you can consolidate private loans with federal loans. In some situations if you have credit card debt you may even be able to consolidate with your student loans. Of course this all depends on which loan company you're dealing with. Otherwise the other option is to consolidate your personal debt separately. It is generally easier to consolidate federal loans than private loans. The following part of the article will describe how consolidate student loans.

Loan Application
Loan Application

Put Together All Paperworks

The first step is to put together all of your paperwork concerning your loans. This is to help you have a clear picture what exactly you're looking at. Keep the federal student loans and private loans in a separate pile. Chances are if you went to a college with high tuition fees, you will have more than one loan to pay off. Most students will have a combination of subsidized loans and unsubsidized Stafford loans.

Along with this, students may have a Perkins loan also. The next step is to contact your primary loan lender. This could either be individual private lenders or the Federal direct loan program. Of course this will vary from college to college and from student to student. When talking to the lender, the student should ask whether there are any rate reductions or automatic payments attached to the loan. Some loans will come with a certain number of payments made in a specified period of time.

Do Research

Do as much research as possible before going forward with any loan consolidating company. There are literally thousands of companies today that offer this service. Compare the rates of each one before going forward with one. Sometimes they will match the rate given by another company or at other times they may offer lower rates if you're consistent with the payments for 34 or 48 months. Once you have decided which loan company can give you the best deal, go ahead and contact and fill in an application form.

The Internet is the easiest way to find an application form. When you sign-up make sure they have an automatic payment option. Automatic payment option will allow you to start paying back the loan right away. In most situations students will have a few months of” Grace" period, before they have to start paying back the loan. So far we have been talking mostly about federal student loan consolidation. The following part of the article will discuss how to do with private student loans.

Consolidate Private Loans

Usually it is more difficult to consolidate private loan. Generally it is easier if you have several private loans. As with federal loans, you should have all the necessary documents ready. Once you have done this you should start researching online for various private student loan consolidators. The first thing you need to do is to contact your current lender, they may actually be able to give you a better interest rate. Whether you are paying off private or federal loans, you should always ask about automatic discount payment options. Many lenders do give this option and if your lender does give this option, you can save a lot of money down the road.

Benefit of Loan Consolidation

Many people wonder why consolidating their loan is a good idea. There are several reasons why consolidation is a good thing to do. As mentioned earlier, you only have to pay one lump sum per month rather than paying for several different loans at the same time. Needless to say this can make things much easier.

When you consolidate the loan, most loan companies will offer a lower interest rate. If you add this up over a period of time, savings can be huge. You also have the option of stretching out the payments which will in turn lower monthly payments. However in the short run, it is always better to pay back the loan as quickly as possible.The quicker you pay back the loan, the total amount you pay back will be less.

Deciding which option is better will depend entirely on the situation of the student and the terms of the loan company. Last but not least, when the loan is consolidated it makes it much easier to see your total annual interest rate. This can be useful when you are applying for student loan tax deduction. This may not be a large amount, but when you're faced with a large loan anything helps.

Video: Student Loan Consolidation


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