Introduction: How to Consolidate Student Loans and Low-Interest Consolidation Loans


Dealing with student debt can be a nightmare. After struggling to find ways to finance their education, many people come to realize that the real challenge consists in finding ways to pay off those hefty loans.

With the job market less dynamic than it has been in the past, student debt can draw out into a decades long process and make it harder for young people to purchase a home and get on with other aspects of their lives.

Learning how to consolidate student loans is one way to help you better manage your debt.

The best way to consolidate student loans will depend on what type of loans you have and your long-term plan for getting out of debt. From direct loan consolidation programs offered by the federal government to low-interest consolidation loans offered by private lenders, there are many options to choose from. Learning how to consolidate loans requires that you do your research to find the best way to consolidate student loans for your situation.

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In this article, AdvisoryHQ will look at when it is beneficial to consolidate private loans or seek out a federal direct loan consolidation program.

Furthermore, we’ll answer some basic question that many people have, including: “Can you consolidate private student loans?” and “Is it possible to use a direct loan consolidation to consolidate private loans?”

We will then offer three of the best ways to consolidate student loans, including a direct consolidation loan from the federal government, the student loan consolidation and payment reduction program, and information on how to consolidate private student loans. We’ll end the article by looking at a few student loan consolidation reviews.

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When Should You Learn How to Consolidate Loans?

Learning how to consolidate loans for your student debt can be a great way to help you successfully manage your student debt.

However, low-interest consolidation loans offered by private lenders may take away certain benefits that you enjoyed with your federal student loans. Simply seeking out a lower interest rate when you are looking for the best way to consolidate student loans could actually cause you more harm than good.

According to Student Loan Hero, “Consolidation doesn’t always result in a lower interest rate, plus lower monthly payments usually means paying the loan over a longer period of time and spending more on interest.” Before deciding to start searching for the best way to consolidate student loans, make sure that you understand the terms and conditions of your current payment program.

The student loan consolidation and payment reduction program was reformed by President Obama in 2010. If you have federal student loans, now is a great time to apply for a direct consolidation loan from the federal government.

According to studentdebtrelief.us, the student loan consolidation and payment reduction program, also known as the Obama Loan Forgiveness Program, made four fundamental changes:

  • “The federal government will no longer give subsidies to private lending institutions for federally backed loans.
  • Borrowers of new loans starting in 2014 will qualify to make payments based on 10% of their discretionary income.
  • New borrowers would also be eligible for student loan forgiveness after 20 years instead of 25 on qualifying payments.
  • Money will be used to fund poor and minority students and increase college funding.”

We will review the details of a direct consolidation loan below, but if you have older federal loans that were offered at a considerably higher interest rate, you almost will certainly benefit from a direct loan consolidation.

If you have one or several private student loans, you won’t be able to combine these loans into a direct consolidation loan from the government. However, there are a number of low-interest consolidation loans offered by private lenders that will most likely be able to help you benefit from more favorable terms.

We will discuss below how to consolidate private student loans, but if you have several high-interest private loans that are hard to manage, learning how to consolidate student loans with a private lender will also benefit you in the long run.

Lastly, if you have improved your credit since graduating, you most likely will be able to benefit from low-interest consolidation loans. According to Credible Labs Inc., “often borrowers are now graduates with better credit and a higher income than when they initially took out loans. That means they can qualify for significantly lower interest rates and better terms with a consolidated loan.”

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Can You Consolidate Private Student Loans?

Many people wonder, “Can you consolidate private student loans?” Banks and lending institutions are always looking for ways to lend money to people, so it is entirely possible to consolidate private loans.

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Banks will also be more than happy to consolidate your federal student loans, but it is usually better to opt for a direct loan consolidation for those federal loans. The federal direct loan consolidation program usually offers lower interest rates and a number of more favorable repayment options that private lenders simply can’t match.

If you have a combination of private student loans and federal student loans, it may be best to opt for a direct consolidation loan for your federal loans while turning to private lenders for other private loans.

Though you will have to manage two loan payments, this might be the best way to consolidate student loans from multiple lenders so that you can still enjoy the government-offered benefits from direct loan consolidation programs.

There are a number of private lenders who specialize in helping you to consolidate your private loans. When looking for the best way to consolidate student loans from private lenders, Credible.com offers a list of the 19 best companies that can help you find how to consolidate student loans with private lenders.


Loan Consolidation to Consolidate Private Loans: Is It Possible?

If you weren’t able to exclusively finance your education with federal loans, you may have had to take out several private loans. If you had bad credit or were a first-time lender, chances are that you were given a fairly high interest rate on those loans.

While a direct consolidation loan from the government offers a number of helpful repayment options and potential forgiveness on those loans, you won’t be able to use a direct loan consolidation for private loans.

The Health Care and Education Reconciliation Act of 2010 dictated that the federal government would no longer give any sort of subsidies to private lenders who accepted federal loans for consolidation. While federal direct loan consideration is widely considered to be the best way to consolidate student loans, if you have private loans, you’ll need to learn how to consolidate private student loans with private lenders.

Related: Student Loan Forgiveness Program | Things to Know If You Want to Get Rid of Your Student Loan



Best Way to Consolidate Student Loans

Below we’ll look at the specifics of the direct consolidation loan offered by the federal government as well as the different payment reduction programs offered through this direct loan consolidation. For those with private loans, we will also offer a few tips on how to find the best way to consolidate student loans with private lenders.

Direct Consolidation Loan

The vast majority of federal student loans are available for a direct consolidation loan. The loans that can apply for a direct loan consolidation include the subsidized and unsubsidized Direct Loans, subsidized and unsubsidized Federal Stafford Loans, Direct PLUS Loans, Supplemental Loans for Students (SLS), Federal Perkins Loans, Federal Nursing Loans, and Health Education Assistance Loans.

According to U.S. News, a direct consolidation loan on average adds 0.125% to your interest rate. However, a direct loan consolidation is still often considered to be the best way to consolidate student loans because of the varied income-based repayment programs that we will review below.

You can find all the information you need regarding direct loan consolidation on the federal student aid website. The process for applying for a direct consolidation loan is simple and straightforward and can be completed individually without the help of middlemen who may charge you a substantial fee for their “consulting” services.

Student Loan Consolidation and Payment Reduction Program

One of the most enticing perks of a direct loan consolidation is the income-based repayment options. This flexible option takes into account your personal financial situation and makes a direct consolidation loan the best way to consolidate student loans.

According to the Christian Science Monitor, on a direct loan consolidation:

“payments will be capped at 10 percent of a student’s disposable income (it’s currently 15 percent) and any debt remaining after 20 years will be forgiven (the current threshold is 25). For public servants – including teachers, nurses, or members of the armed forces – that cap is 10 years. But, those repayment terms are only applicable for loans signed after July 1, 2014, and will not be retroactive, nor do they apply to private loans.”

The student loan consolidation and payment reduction program offers a number of different repayment programs, including the pay as you earn program (PAYE), the revised pay as you earn program (REPAYE), the Income-Contingent Repayment Program (ICR), and the Income-Contingent Repayment Plan (ICR Plan).

You can find a complete guide to these repayment programs for a direct loan consolidation here.

You can begin the application process for a direct consolidation loan here.

How to Consolidate Private Student Loans

If you have private loans, the best way to consolidate your student loans is by finding a lender with low interest rates, no hidden fees, and flexible payment terms. Some lenders may even have certain income-based payment programs, though they are generally not as favorable as a direct consolidation loan.

Lendedu.com is one website that offers valuable and up-to-date information on the best way to consolidate your student loans with private lenders. They offer in-depth review of the top companies for consolidating student loans. Furthermore, Common Bond is another private company that may even offer deferment options and forbearance available for people going through rough economic times. They also offer no prepayment penalty or origination fees on their consolidation loans.

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Student Loan Consolidation Reviews

Reading through different student loan consolidation reviews will often help you find the best way to consolidate student loans. Individual experiences can tell a lot about whether or not a certain company is honest and trustworthy and how hidden fees can suddenly begin to pile up.

You can find a decent student loan consolidation review of the private company Common Bond at The Student Loan Sherpa. Other reviews of the best way to consolidate student loans can be found at Paymystudentloans.com. Furthermore, a complete, independent review of the direct loan consolidation program can be read here.


How Federal Direct Loan Consolidation Is the Best Way to Get You Out of Debt

Whether you benefit from a direct consolidation loan or have to search for the best way to consolidate student loans with private lenders, learning how to consolidate loans can help you save thousands of dollars over the course of paying off your student loans.

Getting out of student debt shouldn’t be a hard process, and with the federal direct loan consolidation program or the best private lenders, you can easily be on your way to a debt-free future.

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