When Should I Consider Private Student Loan Consolidation?

Consolidation LoanFor the past couple of years, the incredible amount of debt among American students has become a hot issue both in the media and on Capitol Hill. In March of 2015, President Obama signed the “Student Aid Bill of Rights,” which states:

  1. Every student deserves access to a quality, affordable education at a college that’s cutting costs and increasing learning.
  2. Every student should be able to access the resources needed to pay for college.
  3. Every borrower has the right to an affordable repayment plan.
  4. And every borrower has the right to quality customer service, reliable information, and fair treatment, even if they struggle to repay their loans.

At a press conference on March 10, Obama stated: “We’re trying to make sure that across the board, more and more young people can afford to go to college, and then afterward, aren’t so burdened with debt that you can’t do anything else.”

Two days later, Congress introduced the “Fairness for Struggling Students Act of 2015,” a bill largely touted by democrats. The likelihood of such a bill being passed is next to none, but at least we can rest assured that the government is responding to outcries over seemingly never-ending student debt.

According to the website “The Student Debt Project,” the average American student graduates from college $29,400 in student loan debt. This number is even higher for students who attended private and private for-profit universities.

This number also assumes that the “average” student graduate from college in four years, did not switch majors, or pursue a specialization or higher-level degree.

Around 90% of student loans are granted by the federal government, with the remaining 10% made by private lenders such as banks and credit unions. Many students see private loans as a last resort – as necessary only when they have maxed out their federal loans.

Private companies generally charge much higher interest rates and fees, making the debt owed much more difficult to pay down. According to the Consumer Financial Protection Bureau, in 2012, around 850,000 private student loans (totaling more than $8 billion owed) were in default.

Knowing Where You Stand

Maybe you’ve seen ads for student debt consolidation. Maybe you’ve received spam email or snail mail from companies offering to refinance your loans for an unbelievably low interest rate.

Or maybe you have no idea what student loan consolidation is. We’re here to help.

Student loan consolidation (or debt refinancing) is when a company or financial institution buys out your multiple loans, making you responsible for just one payment to one company per month.

They often offer lower interest rates and long payment terms, and for most people, they’re a solid choice.

Graduates generally choose to consolidate their loans for one (or both) of two reasons:

  1. Refinancing can save you thousands of dollars per year due to a lowered interest rate.
  2. Instead of making multiple payments to multiple lenders per month, you’re only responsible for one payment to one lender every month.

If you can identify with one of these reasons, you should definitely look into consolidating your loans. The next section will explain how to do so.

Where to Begin with Student Loan Consolidation

The first step is to make a spreadsheet, document, handwritten journal entry, etc., that contains all of your lenders, monthly payments, amount owed, and any other relevant information.

You might be receiving student loan bills from two to four to eight different lenders. Taking into account all of the other bills you have to worry about, it’s difficult to keep track of what you owe to whom and when.

If you don’t know all of this information offhand, check your credit report – it should have all of your lenders listed.

Once you have a handle on what you owe and to whom, you’ll need to hit the phones. As you probably know, there are tons of student loan consolidation scams out there. A basic rule of thumb is: if it looks too good to be true, it probably is.

So, the best place to start is with the lenders you already have. Go down your shiny, new list and call each one – tell them your situation, and tell them that you’re shopping around for the best rate on student debt consolidation.

It can be hit or miss – some financial institutions might offer consolidation, and some won’t. Some will refer you to a decent company – and some will have no referral or refer you to an awful company. Don’t expect to figure everything out on your first try.

Be sure to call all of your lenders and keep a record of your interactions. If none of the terms they’ve offered sound reasonable to you, then it’s time to go it alone.

Search for reputable consolidation companies on the internet. There are tons of sites that offer to compare consolidation interest rates and terms in order to find you the best deal – take advantage of this, but make sure to do your own research as well.

Let’s Wrap Up

In the end, everyone with multiple loans should consider student debt consolidation. There’s a lot of cynicism surrounding the idea, but this is mostly old news – from a time when consumers did not harness the power of the internet and social media to provide feedback on companies.

If you think about it logically – it’s a win-win for you and your loan consolidator. You get a lower rate on your loans and they get interest on these loans that otherwise would’ve been paid to their competitors.

Even if you decide student debt consolidation isn’t the best choice for you at the moment, make sure you at least do your research before you make this decision. After all, isn’t “doing your research” the whole reason you went to college?

photo by: