Student Loan Consolidation

The student loan debt weighs heavily on about 44.7 million Americans. It’s an issue so extensive and so deeply rooted in American society, yet the end seems nowhere in sight.

Borrowers come from all demographics and age groups. No one who wanted to pursue higher education has been able to avoid the immense burden of student loans. In fact, student loan debt has reached a staggering $1.56 trillion in 2020. That makes it the second-highest consumer debt category, topped only by mortgage loans.

You probably spent sleepless nights thinking about how in the world were you going to pay off your student debt. We might have a solution for you. A solution in the form of student loan consolidation.

What Is Student Loan Consolidation

Over the course of your tertiary education, you’re likely to take out at least four student loans, one for each year of study. Besides paying for tuition, you might have taken out a couple of private student loans. You know, just to fill in the gaps, as tuition isn’t the only expense students have.

What you end up with is a confusing mess of student debt with different rates that are difficult to keep up with. Enter student loan consolidation. Instead of paying for various student loans, you can take out a new loan. Then, you use this new loan to pay off the rest of your previous student loans. Put bluntly, you package all your existing student loans into one.

There are two types of loans – federal and private. You can only consolidate the federal loans, but there is a way around private ones as well. We’ll get to it later.

Loan consolidation can help you streamline the process of paying your debt back. But that’s not the only advantage of consolidation. Some of the other pros include lower interest rates and an extended repayment period. But there are some requirements that you need to consider.

What Are the Requirements to Consolidate a Loan?

First of all, you can only consolidate a loan in your name. That means no combining it with your family member or a spouse’s student loan.

Secondly, as mentioned before, there’s no consolidating federal with private loans.

Another requirement is that you’re not in school anymore. And, as you’d expect, you need to be making loan payments right now (or be in the grace period, at least) to consolidate. If you’re trying to consolidate a defaulted loan, the process gets way more complicated and expensive.

Should I Consolidate My Loans?

While student loan consolidation is quite practical and does indeed make one’s life easier, there are some important considerations.

Besides grouping all loans into one and reducing the interest rate, you also get to pay a fixed rate instead of the varied one. You’ll probably be able to make an arrangement to pay less per month. Or you could take the advantage of a graduated repayment program where you pay lower monthly rates at first, which then get progressively more expensive over time.

All these benefits do look enticing. However, there are a couple of drawbacks that you must consider. For starter, while your interest rate does get lower, extending the loan period means you’ll end up paying more in total interest. The total loan repayment amount is also going to be higher.

Furthermore, you will lose borrower benefits from your current lender and will have to repay them (rebates, waivers, etc.). If there was a grace period left in your original loan, you will lose that as well. And most importantly, you can only consolidate federal loans once – so make sure you know what you’re getting into.

Consolidation will also lower your credit score for a time. However, after several timely payments, it will slowly begin to return to its former level.

As you can see, student loan consolidation is not a black and white matter. Give it the proper thought before deciding on a course of action.

Student Loan Consolidation

How Can I Apply for a Direct Consolidation Loan?

Direct consolidation loans are the responsibility of the U.S. Department of Education.

First, you need to sign in on the StudentAid.gov website. After that, you can complete the Federal Direct Consolidation Loan Application and Promissory Note online.

What you’ll have to do is select the loans that you’d like to consolidate, as well as the servicer. Afterward, select a repayment plan and go through Terms & Conditions. Then you’ll enter your (borrower’s) information. Review your application to ensure every little detail is in order.

Should I Consolidate Or Refinance My Student Loans?

As we mentioned before, private loans cannot be consolidated with the federal ones. However, both federal and private loans can be refinanced into one private loan.

Refinancing, or private student consolidation, is very similar to direct consolidation in many respects. You get to bundle all the various loans into one and pay lower interest rates. The thing with refinancing is that they can get significantly lower and you can actually save money.

But there’s a catch. Refinancing takes your entire financial history into account. That means that your credit score, job history, educational background, and income all get to play a role. And you’ll need to have a tip-top credit score to quality – above 600. But the new interest rates are well worth it, ranging from 2% to 9%.

You will lose consumer protections specific to federal loans once you refinance them together with private loans. Take all of that into consideration before refinancing. It is the only option if you want to consolidate your private loans, though.

Do You Struggle Keeping up With Multiple Loans?

If you (like so many others) struggle to keep up with multiple loans, then student loan consolidation is definitely something you should at least consider.

Consolidation is a great option to have on the table. It could be the solution you’re looking for. At White, Jacobs, and Associates, we understand the burden of student loans. Our mission is to help you and restore your financial independence. But to do that, you have to reach out to us first. Talk to a credit analyst at WJA today and get the professionals involved.

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