Student loans are a separate breed of loans. They are relatively easy to qualify for. As a society, we are motivated to assure our citizens are well-educated. However, student loans are not easily dischargeable. Lenders give them out liberally and expect them to be paid off.
Upon graduation from college, you may have multiple student loans from the federal government, from private sources, or both. You are responsible for managing repayment of your loans on schedule. It can be difficult to track multiple loan accounts. Student loan consolidation is a viable option for some recent graduates. You can bundle your loans into one payment, simplifying the management and planning for repayment of student debt. Look at the pros and cons of student loan consolidation to see if it's the right move for you. Start with a review of the types of student debt your are carrying and your options for debt consolidation.
Federal Direct Consolidation Loan
Federal student loans are eligible for consolidation via a federal consolidation program in some cases. Loans from the Federal Family Education Loan Program (FFELP), and direct federal subsidized or unsubsidized loans can be consolidated with a federal Direct Consolidation Loan. Loans taken out by parents of the student (PLUS loans) can't be rolled into a Direct Consolidation Loan. Private student loans can't be consolidated with this program.
To qualify for this federal consolidation loan, you must have a Direct or FFELP loan in a grace period or repayment status, and you can be in default or be behind on your payments. The interest rate may be rounded up on a federal Direct Consolidation Loan.
Private Student Loan Consolidation
Commercial student loan consolidators can bundle your private student loans into one loan, or can combine both private and federal loans into one loan with one payment.
Consolidation of private student loans requires a good credit score and proof of steady income just as borrowing for conventional purposes such as an auto loan or home mortgage. Without a good credit score, you may still qualify for a the loan, but at a higher interest rate. Consider bringing in a cosigner with a good credit rating if your credit score is not high.
Check with lenders on interest rates, and whether they are fixed or variable. When looking at consolidation loans, your interest rate will be affected by the rates on the loans you are consolidating. Calculate whether you are saving money over the life of the loan by consolidating. Take a close look at fees such as loan origination fees. Some lenders offer incentives, for example a break on the interest rate if you enroll for automatic payment from your checking account. Become familiar with the variations in service available. SoFi offers consolidation of both federal and private loans, along with a choice of 5, 10, 15 or 20 year repayment terms. CU Student Loans has unique features such as an interest only option for unemployed students. It's important to do some comparison shopping of the best student loan consolidation companies before making a decision.
Take the time to read the terms of any loan offer carefully before signing for it. Yes, it can be a confusing slog to read an entire loan agreement document, but it's time well spent that can save you money in the long term. Upon signing for a consolidation loan, expect that repayment will begin within a few weeks. Note that with a private consolidation loan, you may lose typical student loan protections such as forbearance of deferment.