What is Student Loan Debt Consolidation?

Consolidation refers to the process of accumulating several debts in a single and simplified payment schedule. In this case, combine your student loans into one or more payment plans that work for your budget. There are several ways to consolidate student debt, depending on the types of loans you have, your budget, and your credit.

Consolidation of private school loans vs. federal

When talking about consolidation, student loans fall into two categories:



For the purpose of consolidation, it does not matter if you have subsidized or unsubsidized loans; both are consolidated in the same way. However, if you use federal loan consolidation options, those only apply to your government-backed debt. In other words, you can not use federal consolidation and reimbursement plans for private student loans.

On the contrary, if you consolidate through a private lender (for profit), you can include both your private and federal student loans. Just keep in mind that if you use private consolidation for your federal loans, you lose eligibility for federal aid programs. You can not, in that case, use the payment plans offered by the government or the cancellation of loans. You should carefully consider your options and situations before converting the federal debt into private debt.

How federal student loan debt consolidation works

Consolidating the federal student loan debt is a two-part process.

First, all your eligible federal loans are consolidated using a Direct Consolidation Loan; This unifies your debts in a single monthly payment.

Note: If you have previous loans under the Federal Federal Education Loan (FFEL) program, then use a FFEL consolidation loan instead.

Then, you enroll in a federal payment plan. This helps you establish a payment schedule that works for your budget and goals, for debt relief. In most cases, you will want to choose a payment plan based on financial hardships, such as. "Reimbursement based on income".

If you work in the public service as a teacher, nurse or first responder (public emergencies), when using this method of consolidation, make sure you are eligible for the forgiveness of public service loans.

How Debt Consolidation Works for Private Student Loans

A private student debt consolidation loan works in much the same way as a credit card debt consolidation loan.

Apply for a consolidation loan through a private lender and qualify based on your credit score.

You choose a term that provides monthly payment obligations that work for your budget.

A longer term means lower monthly payments, but higher total costs.

A shorter term increases monthly payments, but minimizes the total interest charges.

The interest rate of the new loan depends on your credit score.

Once approved, the lender disburses the funds to pay for existing loans that you consolidated.

This leaves only the new, lower interest loan to pay.

Comparing private consolidation with federal

If you have private student loans to pay, private consolidation can be extremely beneficial. You can simplify the bill payment schedule and (if you have good credit) reduce the interest rate on your debt.

The main question is whether you should include federal loans with a private consolidation plan. Below are some pros and cons of the use of loan consolidation for private schools to include federal loans. There are more benefits than risks in the count, but the disadvantages have a significant weight. Consider your options carefully!

The Pros to Consider:

-You can get a better rate and set your terms

When you consolidate through a federal program, you do not get many options.

The interest rate in the payment plan is a weighted average of the rates of your existing loans. If you have good credit or bad credit, it does not matter; Your credit score plays no role in determining your rate.

The term (duration of your loan) depends on the payment plan. The terms vary from 10 years to 30 years, depending on the payment plan you choose. Most payment plans based on financial difficulties have terms of 25 years.

Going through a private lender means that you can choose your term and get a rate based on your credit score. An excellent credit score can be a good reason to do so with private.

-Only have a payment to worry about

If you divide your consolidation plan into two parts, you should remember to cover both bill payments. Although two bills are probably much easier to pay off your loans individually, it is still not as simple as a single payment.

-Customer service can be better with private lenders

Federal student loan administrators are not always known to provide the best service to borrowers. In fact, a recent report in Forbes revealed that more than half of the complaints (54%) about student loans from the Office of Consumer Protection (CFPB) are related to the federal service.

That does not mean that private loan managers do not have problems with customer service. However, with private services, you can choose your lender based on research such as consulting user comments on customer services. Generally, you do not get that luxury with federal programs.

So, for example, you may want to avoid Navient, because it accounts for almost a quarter of the complaints recorded in

CFPB and facing CFPB demands. . However, if your payment is assigned to Navient, there is little you can do to change that service.

-Do not have to worry about annual recertification

Once you qualify for a private consolidation loan, you are ready. You have the same fixed payments to cover, unless you choose to refinance in the future.

On the other hand, if you consolidate federal loans and use a payment plan based on difficulties, you must re-certify annually. Basically, you must re-certify that you qualify for the difficulties assessed, based on your adjusted gross income and the size of the family.

Annual recertification can be painful, especially if your loan administrator does not remember you. If you do not re-certify, you may lose the benefit of the program. Therefore, you should know when the recertification date is and be proactive to apply each year.

The Cons to Consider:

-You will not qualify for the loan forgiveness

If you work in the public service, there are good reasons to avoid private consolidation. Any debt that you convert from federal to private will never be able to qualify for the cancellation of the loan. You must use a federal payment plan based on difficulties and make payments for 10 years to qualify for the Public Service Loan Pledge (PSLF).

This makes private consolidation a less attractive option for:


Nurses and medical professionals


Police officers

EMT (Emergencies)

If you work in the public sector in any of these positions, consider private consolidation with care! Always weigh the total cost of payments in the private versus the federal for you.

If you have problems, you will not be able to use payment plans based on difficulties

Payment plans based on financial difficulties are good if you have problems, so that student loan payments work within your budget. If you have trouble making your payments each month, these plans match your payments in relation to your income:

Payments based on income generally represent 15% of your income

Income: contingent payments are usually limited to 20%

Pay in relation to what you earn (Pay as You Earn) offers to be able to make the lowest payments, such as 10% or less

Private consolidation loans do not worry about your financial status. The monthly payments depend on the term you choose. The only way to reduce your payments would be to modify your consolidation loan to extend the term.

Even if you have constant income and can make payments now, there is a risk that your situation will change. If you lose your job or have problems, there is no turning back to use payment plans based on federal hardship.

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