Consolidate Private Student Loans

By: EconomyWatch Content   Date: 27 November 2009

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Private student loan consolidation is a great way to significantly lower your monthly loan payments as it combines all your private student loans into one manageable loan. You can consolidate private student loans to manage your education-related debt.

You will receive the following benefits:

  • A single monthly loan payment on one bill

  • Competitive interest rates

  • No penalties for prepayment, so that you can repay your loan early at any time

How to Consolidate Private Student Loans

You can consolidate your private student loans through the following steps:

  • List all the outstanding private student loans in the descending order of their balance. This includes the applicable interest rate, pay off amount, loan period and payment address.

  • Check whether any of your loans have conditional terms such as pre-payment penalties. Such terms make refinancing extremely expensive.

  • Weed out errors in your credit report. In loan consolidation, interest rates are determined on the basis of your credit score. So, it is essential for you to review your credit report and ensure that there are no errors such as continued reporting of loan that you have paid off or a credit card that you have closed is indicated in your credit reports. These errors may spoil your chances of getting the best interest rates. Ensure that such errors are corrected before you apply for consolidation.

  • Determine your goals for consolidating the student loans. Since student loans do not have competitive interest rates, you will not benefit if your sole objective is to seek lower rates. You can decide to go for student loan consolidation if you want to:

    • Make one loan payment rather than multiple.

    • Extend the amount of time you have to pay-off the loan.

    • Capitalize on 50-100 point improvement in your credit score. By consolidating at this time, you can save significantly on interest rate.

  • Research the different terms, such as pre-payment penalties, interest rates and loan origination fees, offered by different education lenders.

  • Find out additional incentives such as interest rate reduction for automatic payments from bank accounts.

  • Check whether it will be beneficial to use personal loan or a home equity loan for consolidation.

  • Contact your current loan companies and see if they agree to consolidate all loans at a lower rate.

Finally, shortlist the lenders and make your decision after thorough comparison and apply to consolidate your loan.


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