Should I Consolidate My Private Student Loans?
After years of taking out education loans to cover the cost of college, many borrowers look into the option of consolidating their existing private student loan debt. Why? Consolidating your student loans can provide you with many advantages:
- One low monthly payment
- Payment forbearance options
- Low introductory interest rates / Competitive long term interest rates
- Potential improvement of your debt-to-income ratio
- Potential Co-Signer release*
One low monthly payment
In many cases, when borrowing money for college, student loans are taken out from multiple lenders. This can prove to be frustrating and complicated when it comes to making your monthly payments. By consolidating you can simplify your finances by combining all of your private loans from multiple lenders, into one easy payment.
Most private loans that are not consolidated will carry a repayment term of around 15-20 years. When first completing school, making payments at these repayment terms can be difficult. When you consolidate your private loans, you are able to extend the repayment terms based on the outstanding principal balance. In most cases, you can extend your repayment term out to 25-30 years. By extending your repayment term, your monthly payments are drastically reduced; making your monthly obligation much more manageable. Also, since there is no prepayment penalty, you can pay your loan off at a faster pace and still have a lower payment to fall back on as a safety net. It is important to manage your student loan debt wisely; by extending your repayment term, you may pay more interest over the life of your loan.
Payment forbearance options
Delaying your monthly payment through forbearance is an option if you are unable to meet your monthly obligation. Please speak with a loan consultant to discuss this option further.
Low introductory interest rates / Competitive long term interest rates
Many borrowers that have taken out private student loans in the past will notice that the interest rates are higher than expected. By consolidating private loans, you may be able to lower the interest rates. Even a slightly lower interest rate can result in a large savings over the life of the loan. As you look for a private consolidation loan; you will find that most lenders offer different rates and terms. Take a look at several different programs and see which program will best fit your individual needs.
Potential improvement of your debt-to-income ratio
Another advantage of consolidating your private student loans is that you may be able to improve your debt-to-income (DTI) ratio. This is a factor when determining a borrower’s potential credit worthiness. The DTI is a ratio based on how much you have to pay out each month versus what you earn as income. By consolidating your private loan debt you extend the term of your loan which, in turn, lowers the amount you are required to pay each month. This will improve your DTI which may help you attain additional credit.
Potential Cosigner release*
If you used a co-signer to qualify for a private loan; you may have your co-signer released from obligation of the loan by consolidating your private student loan debt. Many students do not meet the needed credit criteria to qualify for a private student loan on their own. Typically, in this situation, the student will use a parent or family member as a cosigner so they can get the funds needed to attend school. Most borrowers like to remove the cosigner from having any liability to that debt.
*For qualified applicants. Please speak to a loan consultant for more details.