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How Student Debt Consolidation Loans Work
by Allison Boelcke
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Definition and Eligibility
Student loan consolidation means that you take all of your student loans and combine them into one monthly payment. This lowers your monthly payment by extending the loan repayment time. To be eligible for federal student loan consolidation, your outstanding loans must be at least $20,000 and not in default. Private student loans must be between $10,000 and $150,000 and not in default.
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Federal Student Loan Consolidation
Consolidating your federal loans should be done separately from consolidating your private student loans. Federal loans generally have lower, fixed interest rates and can be deferred during economic hardships, while private student loans cannot. To apply for a federal student loan consolidation, you can fill out an application through your loan providers or search for a third-party student loan consolidator online. Give the loan counselor your loan information and a completed application. The loan counselor will then contact your student loan lender for a loan verification certificate (LVC) to ensure the information is correct. A check is then sent to your individual loan lenders. Now you will pay off the consolidated loan versus all the separate federal loaners.
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Private Student Loan Consolidation
Many people also have private student loans. Private loans must have a co-signer in order to be consolidated if they are for an undergraduate degree; if they are for a graduate degree, a co-signer is not needed. The process is similar to consolidating federal student loans in that you fill out a consolidation application with your loan provider or third-party consolidator. You will turn in your application and loan information. The loan provider will close out your individual private student loans and convert them into one lower monthly payment, spread out over about 25 years.
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Benefits of Consolidation
Student loan consolidation can be very helpful for making your transition from college to the professional world easier. By consolidating your loans and having smaller monthly payments, your credit score will actually be higher as you will not have multiple outstanding loans in your name; only one. Consolidation can also be beneficial to graduates because it gives them a chance to progress in their careers and achieve financial stability without struggling with multiple student loan bills every month.
