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Consolidation of Private Student Loans

By Sybria White on August 4, 2010

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Debt consolidation is a process in which one loan is used to pay off many loans. Generally, several loans are combined into one loan. You can consolidate debt for several different types of loans and debt sources such as student loans, credit card debt, or medical debt. This article will address the consolidation of private student loans. Links for additional methods of consolidation for other student loans will be available in the sources section at the end of this article.

Consolidating student loans is an advantageous strategy for many reasons. First, it makes your loan easier to pay off because a consolidation loan is just one loan instead of several smaller loans¹. This makes it easier to focus on your debt, intuitively, because everything is located in one place. Another advantage of debt consolidation is that it can lower your overall interest rate¹. Your interest rate with several loans may be slightly higher than your interest rate with one consolidated loan². In some circumstances, debt consolidation can even secure a fixed interest rate, an advantage rarely offered with smaller individual loans². However, consolidation may not be for everyone. If you can handle your payments consolidation is not advisable. Although, consolidation lowers monthly payments it also extends the repayment period¹. Therefore, it may not be worth your effort to consolidate¹.

Consolidating federal loans differs from consolidating private loans in a few important ways. Generally Private loans cannot be consolidated with federal loans³. Federal loans can now be consolidated through the department of education. Private Loans on the other hand, can be consolidated in several ways. The following education lenders provide Private Student Loan Consolidation Programs.

• Chase Private Consolidation Loan³
• Next Student Private Loan³
• Student Loan Network Private Loan Consolidation³
• Wells Fargo Private Consolidation Loan³

The interest rates for each of these lenders vary and are based on your credit score³. This is one significant difference between federal consolidation programs and private consolidation programs. Keep this in mind when considering a private consolidation loan program because you may be able to get a better interest rate if your credit improves, and vis versa³.

Another few important things to consider when shopping for a consolidation loan:

Fees or penalties for Prepayment
Repayment period extension
Are you only eligible for Consolidation during your grace period?
Fixed or variable interest rates

Make sure you consider all your options before committing to consolidation. It is not suited to every situation. However, if you think consolidation is right for you please visit the links in the sources section for additional information.

Sources:
http://www.loanconsolidation.ed.gov
http://www.cfnc.org/paying/loan/info_consolidation.jsp
http://www.finaid.org/loans/privateconsolidation.phtml