Private Student Loan Consolidation: Pros & Cons

Private Student Loan Consolidation is meant for private student loans you have borrowed to help in affording college. Through this program, you can combine all of your private loans into one big loan with a longer payment term (and hence, lower monthly payments). It is possible to consolidate federal student loans through this also, but I would STRONGLY discourage this, as doing so will mean that you lose the benefits that come with the federal student consolidation loans (such as better interest rates). The best thing to do is consolidate your federal and private student loans separately; by doing this you will probably have some extra money in your pocket in the end for affording college.

But anyways, about Private Student Loan Consolidation:

-As with most student consolidation loan programs, you will have the following general benefits (see other post for more details on them):

-Single, lower monthly payments

-Alternate repayment plans

-extended repayment period

-Ability to choose any lender

-no pre-payment penalties

-Chance to improve credit score


In addition to these, here are other details and financial incentives on private student loan consolidation:

-Better credit = lower interest. If you have better credit than when you did at the time of receiving your current private student loans, by consolidating you can be offered a lower interest rate from a new lender (your current lender of the loans will not change the interest rates). You won’t see this with government consolidation, as your credit is not even checked. This is a good reason to opt for private consolidation, as it will save you more money to go towards affording college.

-Up to 25 year repayment term for undergraduates and 30 year repayment term for graduates. This will offer you the lowest monthly payment possible.

-Medical/dental residents can have their consolidation loan deferred by up to 48 months and active duty military personnel can have it deferred by up to 36 months.

-Can be approved online for private student loan consolidation within minutes

-Undergraduates attempting to consolidate their private student loans will have to apply with a qualified co-signer to be approved. Borrowers with a graduate degree can go without a co-signer if they wish. However, having a co-signer with good credit can help you to get an even lower interest rate.

-Most lenders will release the co-signer after a certain length of time, if you are consistently making your payments on time.

-Interest-only payments available for up to your first two years of repayment, depending on the payment plan you choose. This can ensure that you have extra money to spare if you are just moving out on your own.

- 0.25% interest rate reduction if you allow automatic checking account withdrawal for monthly payments

- Interest payments may be tax deductible

Overall, people choose to consolidate their student loans for the same reason they consolidate federal loans; it lowers their monthly costs and financial stress.

As far as drawbacks, private student loan consolidation has the following general drawbacks:

-More interest (unless are using improved credit thing) accumulated in the end

-Have a longer time before loan is fully paid off

-Might lose repayment incentives from original lending companies

-Loss of deferment or grace period w/original loans

In addition to this, here are drawbacks to private student loan consolidation that do not exist with federal student loan consolidation:

-Variable interest rate – Most private student loans, as well as all private student consolidation loans, will never have a fixed interest rate; this could mean that you end up paying more in monthly payments than what you originally expected.

-Credit check – if your credit has worsened since you received your original loans, you may not be eligible for a private student loan consolidation

-Minimum amount required; you will not be eligible for this loan unless you have borrowed $5,000 to $10,000 or more in loans.

-No grace period (although you can start off just paying interest)