Private Student Loan Consolidation

 When your cost of education exceeds available personal funds and whatever federal state financial aids that your are eligible, then your next option would probably be to look for additional funds from private student loans.

Private student loans are good options after all other financial aids sources have been exhausted.

Unlike federal state or direct student loans, private student loans are credit-based loans that are offered by private banks or lending institutions with terms and conditions that may vary from lender to lender. Also, a credit-worthy co-signer is usually required. These are similar to the personal loans that you apply for when you buy a car or a house. The pricing combination a borrower gets, if approved for the loan, is determined by the credit profiles of the student loan borrower and co-signer.

Take note that private alternative student loans are NOT funded or guaranteed by the federal government. Private Loans are a contract between you (the student) and the private lender. You are responsible for repayment even if the school you are attending closes and does not refund the loan amount used in paying your cost of attendance.

What is Private student loan consolidation?

Just like the Federal Consolidation Loan, a private consolidation loan can combine your private loans into a single loan with a lower monthly payment. But private student loan consolidation is a bit different from direct student loan consolidation because you will have to qualify for the loan. This means passing a credit check as part of the application process. The quality of your credit standing will be used, in part, to determine the interest rate of your new combined loan.

There are certain eligibility requirements to consolidate your private student loans and these include:

1. You must have one or more private student loans with a combined balance of $7,500 or greater, up to a maximum of $300,000.

2. The applicant (or cosigner) must show at least 2 years of satisfactory credit history, 2 years of verifiable residence, and 2 years of employment.

3. The income of the applicant (or co-signer) must be at least $1,500 per month.

So that leads us to the question, should you consolidate your private student loans?

Should you consolidate your private student loans?

There are certain benefits in consolidating your private student loans and these may include:

Lower monthly payments-By consolidating your private student loans, you have the option of choosing a repayment term and this may reduce your monthly payment through the extended repayment term and a flexible repayment plan.

Competitive interest rates-With better interest rate, you may end up saving money over the life of your loan. With a co-signer to your loan, you may even reduce your interest rate further.

One convenient payment- Instead of making multiple payments to different lenders for your private student loans, you'll only have one check to write each month.

No application, origination or prepayment fees, Applying for a consolidation loan costs absolutely nothing and you can prepay your loan at any time without penalty.

Lower debt-to-income ratio-By reducing your monthly student loan payments, you may increase the amount of monthly income available for important purchases like a home or car.

However, note that although by extending your repayment term you will have additional time to payoff your loans but this would mean that the total payments would in fact be increased. This means that you would be paying more money over time. So before you decide on consolidation of your private student loans, make sure you are well aware of the terms and conditions on the consolidated student loans. These include interest rate, upfront fees, terms and conditions of repayment, prepayment penalties and penalties for late payments.

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