Guide to Student Loan Debt Consolidation Programs

What do I need to apply for a consolidated student loan?

When applying for a student loan consolidation, you are required to provide pretty much the same information needed during the original financial aid application process. You may want to check with your lender to see if there is any additional information that they will need. Information that you will need to have readily available includes all of the following:

1. Social security number
2. Current employment information
3. Date of birth
4. Personal references
5. Account numbers, amount and loan types of all loans to be included

When should I not consolidate my student loans?

There are times when consolidating your student loans could cost you more than leaving them separate. Special financial aid programs, like the Perkins Loan, are a good example of this. There are a number of benefits that are available to borrowers of a Perkins Loan that you will lose once the student loan consolidation is complete. For instance, Perkins borrowers who do community service activities through organizations like AmeriCorps or the Peace Corps can actually reduce their overall student loan obligation. In addition, individuals who meet certain criteria like teaching in high shortage areas can qualify for loan forgiveness. There is also the possibility that special interest rate discounts or rebates on the principal will be lost in a consolidation. Find out all of the details and compare what may be lost in the process before completing your student loan consolidation.

What steps should I take to consolidate my student loans?

The steps you must follow when consolidating through Direct Loan Servicing (Department of Education) will differ from what is required by a private lender. Typically, both will review the types of loans that you want to include to ensure that all are qualified to be included in a federal student loan consolidation or private student loan consolidation. When you go through Direct Loan Servicing, your original loans need to be federally guaranteed and you have to have a history with them. A private lender may be willing to consolidate your private and federal student loans into one but this is not always the case. Many consolidation programs require that you consolidate loans with a minimum balance or that you include a minimum number of loans. There are also private lenders who will only process a school loan consolidation for individuals that it already has a relationship with. Many will offer incentives to borrowers like automatic payments and different repayment plans.

When should I consolidate my student loans?

The timing of a student loan consolidation can be done whenever it is convenient and appropriate for you, as long as you have entered the repayment period. In some cases, you can even include some student loans that have not yet entered the repayment period. You can check with your lender for further information, but some loans can be included while still within 180 days of being disbursed.

When you complete the consolidation process, it can not be undone. You will be required to sign a promissory note guaranteeing that you will repay the loan. When that is completed, your old student loans are all paid off with the proceeds from the new loan. Once the funds for the consolidation loan have been disbursed it becomes your financial obligation.

What advantages can I get from a student loan consolidation?

Consolidating your student loans provides you with many benefits including having one payment date each month. This makes it easier to manage your loans since they may all have different payment dates and different payment plans. A student loan consolidation may also allow you to switch from a variable rate loan to one that is fixed. This will enable you to better plan your monthly expenses without any surprises when rates start to increase. When you consolidate your student loans, you may be able to extend your payments for a longer term. Doing all this will not impact your ability to keep some of the other benefits you have with federal student loans, like student loan deferments and forbearances.

What loans can I include in my student loan consolidation?

If your student loans are federally funded, then you can include those in your government student loan consolidation. When going through the Department of Education Direct Loan Servicing, private loans can not be included in the consolidation. When working with a private lender, other rules may apply but it may be easier to find a private lender who will include private and federally-funded student loans into one consolidated loan. There is the possibility that you will lose some benefits, including incentives and deferment options if you finance through a private lender. However, if you need this to lower your monthly payment obligations, you should discuss your circumstances with a lender to better understand your options.