This month, as student loan rates have adjusted and new legislation taken effect, issues impacting college students have taken center stage and lots of questions have surfaced (many of these issues were addressed in a blog post a couple weeks ago). Common among them are questions surrounding private student loans, particularly the issue of consolidating them [for recent graduates].
WHAT YOU NEED TO KNOW ABOUT PL CONSOLIDATION...
Contrary to popular belief, you can consolidate private loans (PLs). The primary question you will need to answer is whether or not doing so is in your best interest. In most cases, it’s not …
PL CONSOLIDATION CONSIDERATIONS.
Cannot consolidate PLs until you’ve begun repayment. Cannot consolidate PLs with federal loans. Consolidating PLs will leave you with a variable rate loan. THE BEST CHOICE WILL OFTEN BE TO LEAVE THEM ALONE.
HOW DO I KNOW IF PL CONSOLIDATION MAKES SENSE FOR ME?
- Look at the benefits your current lender provides. There are very few companies (you can count them on one hand) that will consolidate any private loans [regardless of lender]. More companies will offer some type of consolidation or “refinancing” of private loans, but will require that you have loans with them to be eligible. That requirement will differ by lender; some will require that at least one loan be with them; some may require that at least 50% of the consolidated amount be with them. Regardless, researching your current lender(s) is a good place to start.
- Shop around. As mentioned, there are a few companies that don’t have stipulations in order to use their consolidation/ refinance program. FinAid.org maintains the best list that I’ve come across . You want to shop closely the loan rates/terms because the lender, not the government sets the interest rates (most are linked to the Prime Rate or LIBOR Index).
- How does your credit look? Perhaps the most important question to ask is ‘How is your credit?' and what did it look like when you first took out the loan(s). Private loans are credit-based – if you had poor credit with no co-signer, your current rate is inevitably high. [Assuming your credit has since improved] You would be the best candidate for PL consolidation. Your rate with good credit should be in the ballpark of the Prime Rate, but could be 8% or more (over Prime) with poor credit. You possibly paid fees to take the loans out initially; most companies will assess more fees (not all) to consolidate the loans (1% - 3% is common, but I’ve seen fees that approach 10%) … these fees [along with maintaining a variable rate loan] are the biggest reasons why often you’re best not to consolidate your private loans. If you had good credit all along, your loan situation is not likely to improve by consolidating. Also, keep in mind that a tighter credit environment has resulted in tighter credit scoring standards.
