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When Student Loan Hero CEO Andy Josuweit graduated from Bentley University, he had 16 student loans serviced by four different providers.
If you’re dealing with multiple student loans like Andy was, things can get confusing fast. But student loan consolidation, or the combination of multiple loans into one, can simplify your debt.
Instead of tracking numerous bills, you’d only have to make one payment to a single loan servicer. Consolidation, however, can refer to one of two approaches.
The first involves borrowing a Direct Consolidation Loan from the Department of Education, and it only applies to federal student loans. The second is student loan refinancing, which can include federal or private student loans.
Let’s take a closer look at both types of consolidation so you can decide if either option is right for you.
Option 1: Consolidate federal student loans with a Direct Consolidation Loan
If you have federal student loans, you can consolidate them with a Direct Consolidation Loan. Most federal student loans are eligible, including Direct Subsidized Loans, Direct Unsubsidized Loans, and PLUS Loans.
You can apply for a Direct Consolidation Loan for free at StudentLoans.gov. When you apply for federal student loan consolidation, you’ll also have the option to choose new repayment terms.
For example, you might choose a long term (up to 30 years) to lower monthly payments. Keep in mind, though, that extending your term means you’ll pay more interest over the long run.
You should also note that federal student loan consolidation causes your interest rate to go up slightly. When you consolidate, your new interest rate will be the weighted average of your old interest rate rounded up to the nearest one-eighth of one percent.
This small increase could be worth the cost, though, since federal student loan consolidation can seriously simplify repayment.
Option 2: Combine private or federal student loans through refinancing
Your second option for consolidating comes in the form of student loan refinancing. You can refinance private and/or federal student loans, and you’ll do so through a private lender.
Not only will refinancing combine multiple loans into one, but it could also lower your interest rate. If you have decent credit and a steady income — or can apply with a creditworthy cosigner — you could qualify for low rates on a refinanced student loan.
What’s more, refinancing also lets you restructure your debt by choosing a new repayment plan. You might shorten your term to pay your loan off fast. Or you could give yourself extra time and decrease your monthly bills.
Most student loan refinancing companies, whether they’re a bank, credit union, or online lender such as SoFi or Earnest, offer both variable and fixed rates, as well as flexible repayment terms between five and 20 years.
If you’re considering refinancing, make sure to compare offers from a few different lenders. By shopping around, you can find the best offer for a refinanced student loan.
A note of caution about refinancing federal student loans
Refinancing and consolidating your loans through a private lender — and not the federal government — means you are taking out a private loan. As a result, you will no longer eligible for federal repayment options that can help you out during tough times, such as income-driven repayment plans or Public Service Loan Forgiveness.
Most private lenders don’t offer these same plans, though some might grant forbearance (or temporarily pause your payments) during a time of financial hardship.
Before turning any federal student loans into a private one through refinancing, make sure you’re confident about your ability to keep up with repayment, as you’ll lose access to federal protections.
Is student loan consolidation right for you?
Whether you have federal student loans, private student loans, or both, consolidation could be a good fit for you if you’re looking to simplify repayment and ease the burden of numerous due dates and loan servicers.
Federal student loan consolidation via a Direct Consolidation Loan can also lower your payments (assuming you choose a longer payoff term), but can result in more interest over time.
Consolidating and refinancing with a private lender, on the other hand, could lower your monthly payments or save you money on interest — or maybe even accomplish both.
Before making changes to your student loans, make sure you understand the ins and outs of both types of consolidation. By doing your due diligence, you’ll have a clear sense of how consolidation or refinancing will affect your costs of borrowing over the life of your loans.
Melanie Lockert contributed to this article.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
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1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 5.87% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 5.87% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at email@example.com, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.57% – 6.98%3||Undergrad & Graduate||Visit SoFi|
|2.47% – 5.87%1||Undergrad & Graduate||Visit Earnest|
|2.47% – 8.03%4||Undergrad & Graduate||Visit Lendkey|
|2.80% – 6.22%2||Undergrad & Graduate||Visit Laurel Road|
|2.48% – 6.25%5||Undergrad & Graduate||Visit CommonBond|
|2.57% – 8.17%6||Undergrad & Graduate||Visit Citizens|