Consolidating a student loan refers to the act of merging several student loans into one.
Federal student loansÂ can be combined into a single Direct Consolidation loan; however, when it comes to merging private student loans, the term â€śconsolidationâ€ť becomes problematic. This is because private student loans are not â€śconsolidatedâ€ť; they are refinanced.
Letâ€™s take a look at how refinancing student loans work:
Refinancing of Private Loans
Credit unions, banks and private lenders as well as online-only lender all offer refinancing options. Even financial institutions that may not offer private student loans will still refinance them.
When loans are refinanced with a private lender, the prepayment period can be extended to 30 years. The duration of the loan will depend on the borrowerâ€™s credit score and the total amount that is being refinanced.
Consolidation of federal loans may not require an origination and/or prepayment fees, but private loan refinancing definitely does.
When can a Private Student Loan be refinanced?
This depends entirely on the lender. Some lenders allow refinancing options after just 24 months of payments; some will allow students to refinance while they are in school and others may require that a student wait until they are about to complete their education.
When it comes to private loans, the lender sets the terms and conditions so itâ€™s imperative that borrowers read all related documentation meticulously before signing anything.
Generally lenders do require that students are employed before offering them the option to refinance. If the borrower fails to make their monthly payments, the interest rate and credit score will be impacted.
If you can get a low interest rate, getting your loan refinanced can actually help you save money.
The interest rate on the refinanced loan depends on how risky the borrower is. The lender will assess the borrowerâ€™s income, credit score, career history and even their educational background before deciding the interest rate.
One way to reduce the interest rate is to get a co-signer with a great credit score. Borrowers will also have to show that they are consistent with paymentsâ€”no lender wants a troublesome client!
Loans that should be Excluded from Refinancing
Borrowers who decide to refinance can choose which loans they want to include:
Here are some loans that should be excluded:
- Loans with lower interest rates than what is being offered
- Loans that are almost fully paid off
- Federal student loans that provide protection
- Private student loans that have better terms than those offered with refinancing
Benefits of Refinancing Private Student Loans
- It can help reduce monthly payments, interest rate and even the total borrowed amount
- Co-signers can be released if the borrowerâ€™s income and credit score have increased
- Some lenders provide students the option to refinance Parent PLUS loans too
Who is Private Student Loan Refinancing for?
Refinancing private student loan if a wise option for borrowers:
- With a financial cushion (savings)
- With a stable job
- With a high credit score
- That arenâ€™t looking for student loan forgiveness
Do you think private student loan financing is right for you? Consult our loan specialists to find out! At American Student Services, we help student loan borrowers with repayment plans, loan consolidation, refinancing and student loan forgiveness.
Contact usÂ for more information on ourÂ services.