How to Consolidate Private Student Loans

Why consolidate your multiple private student loans? Consolidation will allow you to streamline all your private loan payments into one payment, and you'll reduce the amount you pay each month because your repayment period will be stretched out over a longer term.

When refinancing a private student loan, you'll get new interest rate terms based on what's currently being offered; and your credit and payment history will likely be reconsidered. The bright side is that you can get quotes from different loan companies, just as you would if you were refinancing a mortgage. Also, if your credit has improved since you originally borrowed your loan, you could get better terms or no longer need to have a co-signer.

How do you find the right bank and the best deal when refinancing your private loan? Here are some tips:

  • Don't limit yourself to your current lenders. With a private loan, you can call up any bank that offers private consolidation loans to get a quote. Start by calling your current lenders, then your current bank, and then perform an online search for private consolidation loans. Get at least three different quotes.
  • Search the Internet for positive and negative reviews, especially if one of your quotes comes from a bank you've never heard of.
  • Pay attention to both the margin and the index. For instance, you don't want to sign up for a Prime rate loan with the same margin added to it as a LIBOR-based loan. Historically the difference between the two could be 2.5 percent to 3 percent.

Here are some questions you should be sure to ask lenders before consolidating:

  • Is there a loan origination fee? A loan origination fee means the lender will charge you a percentage of your loan when you take out your new consolidation. For example, if you owe $60,000 and the loan origination fee is 1 percent, you will be charged $600 for the consolidation.
  • Will you consolidate loans from other banks? If you have loans from more than one lender, you want to ask each new lender you are considering if they will also take on your other private loans.
  • How long is the new repayment period? You need to know just how long it will take you to repay the loan with your extended repayment period.
  • What circumstances will cause a change in the interest rate, such as a late or missed payment? How much would your interest rate increase in this situation?

Caution: Never consolidate federal student loans with private student loans. You don't want to lose your federal loans' fixed interest rates and special repayment options.