This entails grouping your different private student loans into one mega loan by borrowing funds to pay off the many debts and owing just one lender. The main benefits associated with private student loans consolidation include ease in keeping track of your debts since you only make a single monthly payment instead of many different monthly payments on loans. You also face reduced monthly payment which however, comes at the cost of increase in total interest paid over the prolonged life of the loan.
Private student loans cannot be consolidated with federal student loans. Moreover, the low interest rates imposed in federal student loan consolidation are not enjoyed by private student loan borrowers. Private student loan consolidation is merely replacing one debt with another as the loans do not compete on prices. There is no loan forgiveness for private student loans.
Private student loan interests are charged based on the credit score. Therefore, if your credit score improves significantly from the time that you first obtained the loan you might be charged a lower interest rate if you consolidate your debts with another lender.
Different private education loans tend to have interest rates that have similar characteristics to home equity loans. Hence you can use a fixed rate home equity loan to pay off or refinance your private education loans that have variable interest rates. This effectively locks in the interest rates.
Private loans are consolidated by private programs which determine and set the interest rates. This is why they usually have variable interests that are subject to fluctuation as the year progresses. You should therefore consolidate private student loans when interest rates are low.
Before taking up a private student loan consolidation, you should ask yourself the following questions:
- Is the interest rate variable or fixed?
- Are there any additional fees such as costs charged on moving the different loans to one lender?
- Is there a prepayment penalty and how much is it?
To get the consolidated private student loan, private lenders require that you must pass the credit check at stellar rates, meet a minimum loan balance and be a graduate. If you are a new graduate with little credit, you must have a cosigner for you to be eligible for this type of loan.
Some of the private student loan consolidation providers include banks, college foundations and various state agencies. For example we have Cedar education, Citizens/Charter One Education Refinance.