Many parents with dependent children take advantage of programs allowing them to borrow direct from the federal government with PLUS student loans. They can borrow up to the cost of attendance, with the school calculating a total based on tuition, meal plan, room or rental, transport, books and fees. These items can really add up quick, putting parents in a lot of debt. Other parents opt for private student loans to finance their children's education, but the end result is similar. A lot of debt to pay down! Many such parents consider refinancing or consolidating student loan debt to reduce the impact on their financial lives.
Be sure to take a thorough look at the risks and rewards of this major financial move before going ahead. Consolidating student debt involves retiring existing debt by taking a new loan, under new terms. Lenders will look at your credit score, income, expenses and total debt you carry as they consider you for a loan. You want to sift through student loan refinance rates, term of repayment, terms of the loan agreement, and fees to generate the new loan.
How to Consolidate Student Loans with a Private Lender
You can consolidate private student loans. A variety of lending institutions from banks to online lenders compete to refinance your student loans.
Some, such as SoFi, offer specialized features such as paused payments when you are unemployed. In the past, options like this were only offered by federal loan consolidation programs. Other lenders offer flexible options on student loan consolidation. LendKey has innovative features like an interest only option for the unemployed, and the ability to cancel after 30 days. Darien Rowayton Bank consolidates both federal and private student loans, and offers fixed and variable rate options and no loan origination fee.
Federal Programs for Consolidating Student Loans
Note that there are federal loan consolidation programs available to those carrying federal student loans, under very specific terms. Some federal loans are at high rates, motivating borrowers to look at consolidation options offered by the government.
There are risks with refinancing federal student loans privately with traditional lenders. Federal student loans offer borrower protections not available with private lenders, such as Public Service Loan Forgiveness and deferment and forbearance programs. Should you lose your job or have a break in income, after refinancing student loans with traditional private lenders, you'll still be held to the terms of the loan with no access to these federal programs. If you're looking to leave the federal loan program, weigh the risks involved. How secure is your income?
The government does offer a Direct Consolidation Loan to those who qualify via employment with a federal, state or local government agency, public service or a non-profit, tax-exempt organization.
The key thing to remember about student loan consolidation is that it's a one-way street. Once you commit to refinancing student debt, you can't go back to your old loan program. While the Direct Consolidation Loan program is an excellent option for federal student loans, not everyone will meet the qualification criteria for this program. Fortunately, innovative private lenders have begun to offer loan features to accommodate a variety of financial scenarios. Consider the pros and cons of any consolidation loan carefully before making your move.