There is an enormous amount of confusion around student loan refinancing, consolidation, what a student loan repayment calculator is, and so forth. Student loan consolidation refers to combining your existing student loans into a single, new loan.
Student loan consolidation allows you to take out a new loan, which is subsequently used to pay off your current student loans. You have consolidated loans as opposed to having multiple loans and loan payments. You can consolidate all your federal student loans and most of your private student loans.
The loan amount that you are eligible to borrow entirely depends on your university expenses per year. You are likely to have four loans if you are graduating in four years.
Why should you consolidate your Student Loan?
There are primarily two reasons why you should consolidate your student loans:
- The first and foremost reason is to save money. If you are able to consolidate at a lower interest rate, you can essentially refinance your student loans. Lowering your interest rates will save money over the course of the loan.
- Secondly, it is to lower and effectively simplify your monthly payments. If you happen to have several student loans and have to handle multiple monthly payments, you can ease the burden by merging the loans into a single new loan with one monthly payment. You may end up with a lower total monthly payment as well, entirely depending on how you refinance your loans.
Pros of Student Loan Consolidation
Here are some of the advantages of student loan consolidations.
Single Payment
Consolidation fundamentally means combining all your federal loans into one. This loan will be handled by a lending institution and will require you to make one monthly payment.
Avoiding Default
Consolidating loans will allow you to modify the payment terms and reduce your monthly payment. This should help you avoid defaulting on your payments if you are struggling to make them every month.
If you happen to default, you can expect your credit score to take a significant hit and remain your credit report for seven years.
Fixed Rates of Interest
If you have many loans, chances are you are paying those loans at different interest rates. A consolidated loan, however, has a fixed interest rate throughout the loan.
The rate of interest on a consolidated loan is fixed based on the average of the interest rates on all the loans that are being consolidated, rounded up to the nearest one-eighth of 1%.
Reduced Payments
Consolidation affords you a plethora of repayment plans, many of which have loan terms of 15, 20, or even 30 years. A long-term loan can reduce your monthly payment by as much as 50%, making it easier to manage while you are working. You can also get reduced interest rates, which are bound to reduce monthly payments as well.
The Best Student Loan Consolidation Companies
Education Loan Finance
Education Loan Finance (ELFI) offers you fixed rates that start at 3.09 percent. This is easily one of the lowest interest rates refinance options out there.
ELFI provides you loans without an application, origination, or prepayment fees. You can apply for loans that go up to an amount of $15,000. If you are a borrower, you can get a bonus via a referral program that rewards you with $400 for each referral that you make.
To apply for loans, you will need to have a credit score of 680 or higher, and an income of $35,000. If you qualify, you are likely to get loans at the best interest rates on the market. Couple this with the non-requirement of fees and up to 12 months of forbearance due to economic hardship, and you can see why ELFI is an excellent option to keep in mind.
LendKey
LendKey is one of the top student loan companies and is said to be one of the very best overall loan options, especially for undergraduate student loans.
It is known to offer low-interest rates and flexible options for repayment, including the choice to make interest-only payments, and a reduction in interest rate after reaching a 10% principal payoff.
LendKey does not charge origination fees and offers loans from $5,000 to $125,000 for undergraduate loans, up to an amount of $250,000 for graduate loans, and $300,000 for medical student loans.
As an applicant, you are required to earn a minimum of $24,000 a year to qualify. However, if you have financial problems, you can use upto 18 months of unemployment protection and four years of interest-only payments.
Citizens Bank
Citizens Bank is one of the oldest lenders on the market. However, it strengthened its foothold in the student loan market in 2014, making its student loan products some of the latest lending products available.
The interest rates you get depend on your degree. Fixed-rate undergraduate loans start at 6.45 percent APR, which makes them a tad more expensive than others. However, Citizens Bank does approve loans for non-graduates, which cannot be said about other lenders in the private student loan consolidation realm. This applies so long as you have a minimum credit score of 680.
Conclusion
As a newbie in the world of student loan consolidation, you need to get a decent grip on the fundamentals along with the use of a student loan consolidation calculator, student loan repayment calculator, and so forth.
