Student loan consolidation requires gathering information, and this is the most important part of the process. First, you have to understand how restructuring works and how it will affect you. In addition, you must research several companies before making any decisions. This is a step-by-step guide to student loan consolidation.
Step 1) Begin to gather information
You should start by collecting original loan documents, promissory notes and student loan bills. Then, look for information. Student Aid on the Web, FinAid and NextStudent are some of the most helpful organizations and sites on the web.
Step 2) Find out if you have federal or private student loans
You will have to check your paperwork or contact your current lender to determine the loan type you have. Federal student loans are from the government and include Stafford Loans, Perkins Loans, HEAL/HPSL Student Loans and PLUS Loans. Private student loans come from banks and include Sallie Mae, Wells Fargo, Citi, Chase, Discover, PNC and many others.
Federal and private student loans can be consolidated to reduce monthly payments, but they cannot be combined. This is one of the key elements to keep in mind. If you have two federal loans and two private loans, then you cannot combine all four into one loan. You can only consolidate them by their categories.
Step 3) See if you meet the consolidation requirements for federal loans There are only two things you have to check before applying. First, you cannot be behind on your loans. Second, you cannot be in school more than part time.
Step 4) See if you meet the consolidation requirements for private loans
It is more difficult to qualify for private loan consolidation. You cannot be behind on any of your loans. Also, you must have a good credit history and FICO score. The total loan balance must meet requirements because each lender has set a minimum loan balance that can vary from $5,000 to $10,000. Additionally, this type of student loan consolidation may require a cosigner.
Step 5) Contact lenders to consolidate federal loans The number of potential lenders has decreased significantly because of federal changes. Sallie Mae and other banks no longer do any type of loan restructuring. There is only one option left to consolidate federal loans, and it is the US Department of Education’s Federal Direct Loan Consolidation. There is an online application here.
Once you submit an application, the waiting period for a response is 45 days or longer. Then, you will receive notification and have 10 days to make any changes. If you do not respond in 10 days, the loan consolidation will continue.
Step 6) Contact lenders to consolidate private loans
Wells Fargo, Chase, Student Loan Network and NextStudent are the only lenders who still do private student loans. You should contact all of them and compare rates. Their applications may be more detailed and require proof of income, but federal loan consolidation does not require this. The waiting period for approval may be 45 days.
Step 7) Do the math
Will consolidation help or hurt your finances? Although restructuring student loans will reduce current monthly payments, you will extend the length of your loan and pay more in interest. You can use the information gathered in steps 5 and 6 to make a decision. In addition, there is an online calculator that shows the benefits or pitfalls of your choices.
Step 8) Make sure you are happy with your decision Student loan consolidation is permanent. You cannot change your loans or consolidate again. Furthermore, the interest rate will be fixed.
Restructuring your student loans is a long and difficult process, so you have to be organized and patient. Also, you have to ask a lot of questions and make sure you understand the consequences of your decisions. You can only consolidate student loans once so make sure you do it correctly.
