If you’ve recently graduated from college — meaning your student loans are going into repayment — you may be hyperventilating over how you’re going to keep track of it all — let alone repay those loans. Student debt consolidation can simplify loan repayment, give you alternative repayment options, and even help you switch from a variable interest rate to a fixed one.
Student Debt Consolidation: Not for Everyone
Many college grads have taken out several different student loans by the time they graduate; some are federal loans, and some are private. When considering whether to consolidate your student debt, know that 1) Federal loans can not be combined with private ones, and 2) since all federal loans have had locked-in interest rates since 2006, the only advantages of refinancing are having only one monthly payment and possible repayment plan alternatives (such as an income-based repayment plan).
If your student loans are mostly private ones, refinancing could help you by switching from variable interest rates to a locked-in rate. If you have a few solid years of timely loan repayment and a good job history since you took out your loans, your credit score may have jumped considerably, upping your chances of getting a better interest rate upon debt consolidation.
Tips for Consolidating Student Loans
Student loan holders are generally eligible to consolidate loans after graduation, leaving school, or dropping below half-time enrollment. After finding out whether your loans qualify for consolidation, make sure that it makes sense to consolidate your student loans. Compare your current monthly payments with what your new monthly payment will be; if your new interest rate will be steeper than one of several loans, you may want to keep that one out of your consolidation. You may be able to shrink your private student debt by getting a lower interest rate from a credit union — especially if you add a cosigner (who can be removed from the loan after a year of timely payments). Note that consolidating a defaulted loan first requires you to make repayment arrangements on the loan with your current loan servicer before you consolidate. Obviously it’s crucial to make sure your new loan servicer is a legitimate company and that they actually pay off your original loans!
