How To Consolidate Student Loans

Student Loan Consolidation is available to help students reduce their federal education debts by combining all of their outstanding loans into a single loan.

How the Loan Works

The creation of this one loan, which may reduce monthly payments and extend the lending time, creates the chance for easier repayment of all federal loans. In essence, when you consolidate your student loans, you are really refinancing them. Consolidated public loans under the federal government program are considered paid in full by the new loan.

About the Program

The program was created to encourage educational pursuits by making otherwise unmanageable public loans practical for repayment and in a timely fashion. With federal programs expending approximately $104 million in 2010-11, student loan consolidation has been a well-received solution to student debt management.

When You’ll Qualify

Prior to July 1, 2006, students could consolidate their public loans while they were enrolled in school full time. Eligibility now begins after graduation. Students can either consolidate during the six-month grace period after graduation or wait until after the loan enters the repayment phase.

Types of Loans Eligible for Consolidation

There are two primary types of educational loans — private and federal. While both may be eligible for consolidation, it is important to think of these two types independent of each other when considering consolidation.

Private Student Loans

Private student loans are granted and managed by regular lending institutions – banks, college foundations, various state agencies – and typically charge a higher fixed or variable-interest rate than federally funded loan programs. Private student loans are credit-based, meaning student borrowers with better credit scores will pay lower interest rates than those with lower scores because banks assess the risk of each borrower.

Federal Student Loans

Federal student loans are the easiest and most beneficial to consolidate because they offer low interest rates, increased payback terms (which decreases the monthly cost) and because they reduce the number of lending institutions you have to pay every month. For example, instead of making multiple payments to multiple lenders at various times of the month, you simplify the equation by making a single monthly payment.

What’s the difference?

Private loans, also referred to as alternative education loans, are backed by private lenders, while federal loans are backed by the U.S. government. This difference is important.

That difference is also why you should never consolidate private and federal loans into a single loan. The best practice is to consolidate federal loans and private loans separately.

Process for Consolidating Federal Student Loans

1. Get an Evaluation

The first part of your plan is providing a snapshot of your overall financial picture to a trusted partner of Your options are determined by the amount of debt you carry and the current difficulty you have in fulfilling your monthly obligations. Even if your student loans don’t strain your wallet, consolidating them into one payment could free up additional cash, or help to structure payback of your loans on your terms.

2. Review Your Options

You may want a payment plan contingent on your income, or you may want to stretch your loan payback over a longer period of time for the lowest fixed payment. Our partner will explain these options to you and give you a recommendation for moving forward. It helps to be prepared for this step with your student loan login and PIN so you can provide up-to-date loan information.

3. Submit Your Application

When you decide to consolidate, our partners will make the process easy for you. All the hard work will be handled for you. The federal student loan consolidation application process is detailed. One mistake or omission can result in a rejection. Your paperwork will be prepared and submitted for you, with your approval.

4. Get Your Loans Paid Off

Once you receive application approval, your current federal loans will start getting paid off in less than 90 days.

5. Start Making Payments

This is the second chance you’ve been waiting for: a lower payment and a more forgiving timeline. Take advantage of this opportunity, and make your payments on time. Feel good knowing you solved your debt issues by being proactive. You’ll start making your one new payment immediately on your consolidated federal student loans.

Federal Student Loan Repayment Plans

If you’re paying off federal student loans, you are one of nearly 37 million borrowers with outstanding student debt. The U.S. government offers you severalrepayment plans, including some that give you a maximum of 25 years to pay off your student debt, while others are tailored to your income and family size. You can even switch your plan if your needs change.

slc-studentsStudent Loan Consolidation & Your Credit

All federal and private student loans are considered unsecured debt. That means they are not backed by collateral, by some asset – a house, a car, a piece of land.

Unsecured student loan debt is looked upon more favorably by lenders when it comes to evaluating your credit worthiness. Student loan debt is often considered good debt because it represents an investment in your future.

If you are timely in making your federal and/or private student loan payments to your lender, having this type of debt can actually begin to strengthen your credit rating after about six months of steady payment. Better yet, if your student loans are consolidated, reducing the number of active accounts on your credit report, it can heighten your score as well.