Consoladating student loans
Some are better than others, so make sure to look at the varying terms of each one — staying away from charges or origination fees and checking the maximum interest rate so you won’t get burned down the road.
Most also have limits on how much you can consolidate.
But borrower protections and repayment options on private consolidation loans can vary wildly from lender to lender.
Betsy Mayotte, director of regulatory compliance for the student debt assistance group, American Student Assistance, makes sure to tell borrowers to stay away from consolidation loans that combine federal and private loans.
Consolidating both types of loans excludes borrowers from federal protections.
When eyeing consolidation options for private loans only, Mayotte says borrowers should evaluate the new loan’s hardship protections and repayment terms in addition to the interest rate.
Instead of making multiple payments to multiple lenders, the borrower only has to pay off the new consolidation loan, says Michelle Pezzulli, vice president of operations for Credit Union Student Choice, a student lending service provider in Washington, D. “That new loan will have its own interest rate; it will have its own repayment terms; it will have its own terms and conditions,” she says.
This can be attractive to borrowers because the consolidation frequently results in longer repayment periods and lower monthly payments.
Once the application is submitted, the federal government estimates that it takes 60 to 90 days to officially complete the consolidation process.And once consolidated, they usually have variable interest rates, O’Connor says. Consolidating private student loans when interest rates are low (like now) “could potentially save thousands of dollars.” It also means your interest rate can fluctuate higher as the years tick by.Unlike federal loans, it can be trickier to get your private loans consolidated.It also means if you’re a new grad with little credit history, you might need a co-signer to be eligible.
If a co-signer is necessary, O’Connor says borrowers should ask if there’s a co-signer release option after a certain period of time.“If the terms you’re going to get are the not as generous as the terms you already have, consolidation is probably not a good idea,” she says.Regardless of whether consolidating federal or private loans, there is a catch.Even if your rates seem high, t he Department of Education puts a cap on consolidation loan rates at 8.25 percent.