Consolidating Private Student Loans1

The Cost of Consolidating Private Student Loans!

Consolidating private student loans is a scary but often necessary step in the path of a new graduate. Some people are lucky enough to have their education paid for without loans. Others still are lucky enough to have been able to use only federal loans or a combination of federal loans and other methods of payment. But for many of us private student loans helped, or in some cases, completely financed our education. For students who have taken out multiple loans consolidating them into one manageable payment is the most feasible way to repay those loans.

There are a few differences between consolidating private student loans and federal loans. If you have both federal and private loans be aware that they can not be consolidated together into one loan. Focusing on consolidating private student loans involves a traditional bank who is also an education lender. This lender will reevaluate you as a borrower when consolidating your loan. In short, they will check your credit. The private loan is subject to a thorough credit check and the interest rate is based on that credit score. 

One of the other major differences in consolidating private student loans is fees. While federal student loan consolidation does not require payment of any fees, the private loan can and usually does charge fees. The lender can charge an application fee, maintenance fees, and early repayment fees to name a few. This sounds expensive and it can be, but on the bright side, it can also be used as a bargaining tool. Because lenders will compete for your business you may be able to ask for a reduction in fees or the student loan consolidation rates for them to get or keep you as a costumer. 

Even if you get a good interest rate and the fees removed or reduced from your loan bear in mind that there are still added costs. When consolidating private student loans you add on to the length of time you must repay the loan. Adding time, adds interest. This student loan consolidation interest is tacked on to the amount you have to repay. The only way to avoid extra cost is to pay on your original schedule, be sure to evaluate if you are able to do this. Consolidating before you default or get into other financial trouble is the best way to protect yourself and your credit score.