Student Loan Consolidation

Private student loans are granted based upon the borrower’s and co-signer’s credit score and profile, interest rates are variable and usually higher than the fixed interest rates attached to Federal student loans. Therefore, when consolidating private loans following graduation, a debtor may actually secure lower interest rates, particularly when the recent graduate’s earnings power has expanded and the credit profile is strong. Private student loans can only be consolidated through private institutions such as banks, credit unions and college foundations. There are no Federal governmental agencies available for the consolidation of private student loans.

Student Loans take the form of either Federal or private loans, and it generally makes sense to pursue consolidation of these two categories independently of each other. In the case of Federal student loans, the Direct Consolidation Loan program offers the opportunity to lower overall monthly payment expense while also reducing the number of payments made to various creditors down to one single payment. In the case of private student loans, interest rates are variable and generally higher than those attached to Federal student loans, as private student loans are granted based upon the borrower’s credit score and profile. Therefore, when consolidating private loans following graduation, in some cases, a debtor may actually secure lower interest rates, particularly when income levels are higher and the credit profile is strong. It should be noted that private loans cannot be consolidated within the Federal Direct Consolidation Loan program – they can only be consolidated through private institutions such as banks, credit unions and college foundations. Some private lenders will allow Federal loans to be consolidated with private loans, but because Federal student loans typically carry lower interest rates than do private loans, consolidating the two types together will often make less financial sense.

For many of the 44 million young Americans saddled with significant student loan debt, the choice to consolidate student loan obligations can make a lot of sense. Student loan consolidation not only offers the opportunity to simplify the monthly payment process through one streamlined payment per month, but it can also relieve a measure of financial pressure by reducing the overall monthly payment. Payment plans can be structured according to income level, so if a borrower’s income is low, the required payment can be reduced sharply.

Since 2006, student loan debt consolidation between spouses has been prohibited.

Consolidating student loan debt can prevent garnishment, as funds from the consolidation loan can be quickly utilized to pay off existing debts and old, defaulted loans. The immediate repayment prevents garnishment, and the new debt consolidation loan often comes with either a lower monthly payment or a lower blended interest rate, and one simplified monthly payment.

For Federal loans, the answer is no. Students can only consolidate during the six-month grace period following graduation and during the repayment process. Active students cannot consolidate Federal student loans. Private student loan consolidation is also not done by active students, although many graduates do pursue it.