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How to Consolidate Student Loans

How to Consolidate Student Loans
Sophia Shoemaker
UpdatedAug 18, 2008
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    4 min read
Key Takeaways:
  • Consolidation may stretch the term of the loan.
  • Ask about rate discounts for automatic payments.
  • Federal student loans are easier to consolidate.

Learn the 5 Steps to Consolidate a Federal Student Loan, and the 4 Steps to Consolidating a Private Student Loan.

Although your school gave you some information when you took out your student loans, they may not give you the full scoop on student loan consolidation after you graduate. If you wonder, "How do I consolidate my student loans?" keep reading to find the answer.

Student Loan Consolidation Offers

Until mid-2007, most people with student loans received numerous offers to consolidate their debts. Due to a change in federal lender subsidies, many of these solicitations have stopped, but that does not mean you cannot consolidate your college loans.

Eligibility for Student Loan Consolidation

If you have Federal Stafford, PLUS, or Perkins loans, you can consolidate them together. Private loans may be eligible for consolidation, but not all lenders agree to become part of a consolidation. In most cases, it is not possible to combine federal and private student loans in a student loan debt consolidation loan, due to the differences between loan terms.

How to Consolidate Student Loans

Consolidating federal student loans is a fairly straightforward process. Consolidating private loans is more difficult, but it can be done.

Five Steps to Federal Student Loan Consolidation

  1. Gather your loan paperwork for all of your loans. Depending on the cost of your school and the number of years you accepted loans, you will have several individual loans. Most students have both subsidized and unsubsidized Stafford loans for each year. You may also have Perkins loans or PLUS loans for each year.
  2. Contact the primary lender for your loans. Depending on your school, this may be the Federal Direct loan program, or an individual.
  3. Ask about any additional offers for rate reductions with automatic payments or following a certain number of on-time payments.
  4. Research terms available from other consolidation lenders online to see if anyone offers a larger discount for automatic payments or an additional discount after 36-48 on-time payments. Due to the recent changes in funding, most lenders now offer a quarter percent reduction for automatic payments. A few also offer a quarter percent reduction after 36 on-time payments, but these offers are harder to find.
  5. Choose your lender and sign the paperwork. Your old loans will be paid off and you will now receive payment instructions for your new consolidation loan. Sign up for automatic payments promptly. There may be a one-month delay before the program takes effect, so be sure to make on-time payments for that first month. If your grace period expires before you file for consolidation, make sure to make the payments until the consolidation process is completed.

Four Steps to Private Student Loan Consolidation

Private loan consolidation is more difficult to find, but it is possible. Take these four steps:

  1. Gather your loan documents.
  2. Research private consolidation lenders online for minimum loan balance and interest rate requirements.
  3. Contact your current lenders to ask about consolidation offers.
  4. If you are eligible for consolidation, ask about discounts for automatic payments. A few lenders offer them, but they are harder to find due to the change in funding laws.

Student Loan Consolidation Benefits

The primary benefit of consolidation is simplified payments. Rather than five, ten, or more payments every month, you have just one or two payments to make.

In many cases, consolidation stretches the term of the loan, so you may actually pay more in interest over the life of the loan. If possible, try to accelerate your payments as your income grows to avoid paying additional interest. However, any discounts you receive for consolidating student loans will reduce the total interest you pay over the life of the loan.

Finally, student loan consolidation makes it easier to keep track of your total annual interest paid. That figure is important if you are eligible for the student loan interest tax deduction. Although the deduction will not save you a lot of money, every little bit helps.