With the rising cost of tuition at most American universities, many students will acquire student loan debt at some point before they graduate. To make student loan debt more affordable and easier to pay back, lenders often encourage students to consolidate their student loans. Like most new graduates, I knew very little about student loan consolidation when I completed college. Below are some of the things I learned about student loan consolidation while researching consolidation terms and selecting a student loan consolidation company.
What is Student Loan Consolidation? To grossly oversimplify the whole concept, student loan consolidation means that one lender pays off all of your outstanding student loans, leaving you with one large loan with one interest rate and one monthly payment. Lenders often require that a borrower have at least $7,500 worth of loans to consolidate. If you have less then $7,500 of total student loan debt, congratulations! With a debt that “low”, consolidators don’t find it worth their time to process your application.
What Types of Loans Can be Consolidated? You can consolidate most federal loans, including subsidized Stafford, unsubsidized Stafford, and Perkins loans (the three types of loans that I had). Loans obtained from your state and/or private loans obtained through banks are not eligible for student loan consolidation. If you have private loans you may be able to consolidate them with a private lender or bank. Thankfully, I was able to complete college without taking out any private student loans.
How I Researched Lenders. Shortly after I graduated, I made an appointment to meet with a financial aid officer at my university. During that appointment, I was given a list of companies who offered student loan consolidation and a chart comparing each lender’s consolidation requirements, interest rates and benefits. From that chart, I picked the three lenders I was most interested in consolidating with. I researched each lender online and went to each lender’s website. Thanks to the abundance of information available on the Internet, the process of finding and selecting a student loan consolidation company is much more simple and transparent then it was even 20 years ago.
How I Chose a Lender. When I chose a student loan consolidation company, I was most interested in three things: repayment incentives for borrowers who make monthly payments on time, convenience of electronic payment, and lowest interest rate. Ultimately, I chose to consolidate my undergraduate loans ($17,500 total) with Affiliated Computer Services (ACS). ACS offered me the lowest interest rate (2.75%), a 0.25% interest rate deduction for signing up for automatic debits from my checking account, and a 1% interest rate decrease after 36 months of on time payments. Frankly, the terms of consolidation with ACS, were basically the same as those with most of the other student loan consolidators. I chose ACS because one of my loans was already being serviced by ACS, their website and automatic bill pay were straightforward and easy to use, and their customer service representatives were friendly and helpful.
If I Had to Do it Over Again? I would make the same decision. Consolidating my loans was a quick and easy way to reduce my interest rates, decrease the number of monthly bills I had to pay, and eliminate the hassle of dealing with three separate loan companies. I did not have any problems working with ACS, and would not hesitate to use them again.
Advice. If you’re thinking about student loan consolidation, do your research first! Find a company that best meets your needs and think about the benefits and drawbacks of consolidating your student loans. Make sure to take into consideration the repayment plans offered and the amount of time it will take to pay off your loan. Paying over 20 years may decrease your monthly payments, but you will pay much more in interest over the life of the loan. Consider automatically debiting your monthly payment from your checking account, as I did, for an interest rate deduction. And lastly, but most important whether you decide to consolidate or not, never pay your bill late! You will damage your credit and adversely impact your ability to borrow money in the future.