Is it possible for federal student loan borrowers to refinance their loans with the government? In a nutshell, yes. Your federal student loans are combined into one loan with a single monthly payment through consolidation. Learn about the pros and cons before you consolidate.
Consolidation may not be the right choice for all borrowers. Consolidation may not be the best option for you depending on your loan types, interest rates, and payment history.
Remember that once your loans have been consolidated into a Direct Consolidation Loan, the consolidation cannot be reversed. Learn what consolidating will mean for you before you consolidate.
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How does loan consolidation work?
A Direct Consolidation Loan can simplify your loan repayment if you have federal student loans by combining all of your current loans into a single new loan.
This provides you with one easy-to-manage monthly payment. You may also be able to access other repayment and forgiveness programs with its help.
Regretfully, it might mean that you forfeit some advantages associated with your present loans. For instance, if you’re already working toward Public Service Loan Forgiveness (PSLF) or longer-term forgiveness with an Income-Driven Repayment (IDR) plan, Direct Loan Consolidation resets your payment count.
Furthermore, the interest rate on your combined loan will be determined by averaging all of your current interest rates that are associated with the loan. Depending on the specifics of your initial loans, this amount is then rounded up to the nearest one-eighth of one percent, which implies you might not save money through consolidation.
To determine whether consolidating your student loans is the best course of action for you, weigh the many benefits and drawbacks.
Under the Direct Consolidation Loan program, the majority of federal student loans, including but not limited to:
- Subsidized and Unsubsidized Federal Stafford Loans
- Direct Subsidized and Unsubsidized Loans
- Direct PLUS Loans
- PLUS loans from the Federal Family Education Loan (FFEL) Program
- Federal Perkins Loans
You have the option to combine all of your federal loans into one at a time. Alternately, choose which loans to include in the new loan consolidation only.
The federal loan consolidation process is fairly straight-forward. The main steps include:
- Explore repayment plans ahead of time. Use the StudentAid tool to estimate your monthly payment under different repayment plans. gov Loan Simulator.
- Gather your personal and financial information. For instance, you will need to be aware of every loan’s specifics, such as its account number, loan code, and anticipated payback amount. Additionally, if you intend to repay your consolidation loan through an IDR plan, you will require proof of income.
- Continue to make payments on your current loans. The Department of Education must verify that your loans qualify for a consolidation loan and that the payback amounts are correct.
You will receive notification from your new loan servicer when the procedure is finished or if more information is required.
Loan consolidation doesn’t happen overnight. The approval process for your consolidation application may take weeks or even months, depending on the loan servicer you choose.
Processing times may or may not be a consideration when choosing a loan servicer, depending on your circumstances.
Typically, loan consolidation takes place between 30 and 45 business days after the application is received. However, when I got in touch with each federal loan servicer directly, I got different responses.
Navient and OSLA Servicing, for instance, projected a processing time of 70–75 business days. Great Lakes, on the other hand, claimed to follow Department of Education guidelines and to have a 30- to 45-day timeline. According to FedLoan’s website, the origination process takes roughly 30 business days.
In addition to standard processing times, borrowers may inadvertently cause the process to drag on by taking certain actions.
Common processing delays include:
- Missing information or incomplete application.
- giving insufficient evidence of income in the event that an IDR plan is chosen or mandated
- Making the incorrect loan selections when opting to consolidate student loans partially
- Adding eligible loans after your initial application.
- Making any changes to your application after submission.
Furthermore, if borrowers decide to mail their consolidation application rather than submit it online, they should account for additional delivery and processing time.
Private student loan consolidation solution: refinancing
Student loan refinancing, which works similarly to consolidation, lets you pay off several old loans by combining them into a single new loan with a single monthly payment. Refinancing student loans involves working with a private lender.
In the event that you currently have private student loans, refinancing is a great choice. It can cut your interest rate, which could result in interest savings of thousands of dollars over the course of your loans.
We advise comparing refinancing offers and terms for your private student loans at least once a year.
Refinancing federal student loans into private loans is an additional option. You will need to consider the advantages and disadvantages of refinancing if you have federal loans, though, as you will no longer be eligible for federal benefits and protections.
How long does it take to refinance?
The private lender you choose to proceed with will determine the specifics of the refinancing process and timeline.
Refinancing lenders that offer one of the quickest application processes are Credible.
On certain platforms, you can use a soft credit check to determine your refinancing rate. However, your refinancing application will need you to submit financial and personal data (e.g., g. Social Security Number, income, etc. ). Additionally, details regarding each of your current student loans must be provided.
The refinancing process may take several weeks to finish after your application has been submitted.
For instance, it may take up to 30 calendar days to refinance with Laurel Road. However, the completion time for the process is typically two to three weeks, contingent upon the promptness with which your supporting documents are submitted.
Earnest refinancing takes about the same timeframe. Typically, the application review process takes three to five business days to complete. Subsequently, it may require an extra two to three weeks for loan processing and payout.
It’s best to speak with your refinancing lender directly to learn more about their estimated timeline because every lender has a different process.
Get expert help for your student debt
Consolidating your student loans has many advantages. However, if you are unaware of its limitations, it could hinder or increase the cost of your entire debt repayment process.
If you’re unsure if loan consolidation is the best option for you, our team of student loan specialists can help you explore different repayment options. Schedule a consult today to receive a customized repayment plan.
FAQ
Can you be denied student loan consolidation?
For a variety of reasons, including low income, excessive debt, or a low credit score, you may not be approved for a student loan consolidation. A lender may conclude that you don’t have enough money to repay a new loan if your income is low. An excessive amount of debt indicates that you may not be able to manage debt.
Can my student loans be forgiven if I consolidated?
Only federal Direct Loans can be forgiven through PSLF. By combining your previous federal student loans into a new federal Direct Consolidation Loan, you might be eligible for PSLF if you also have Federal Family Education Loans (FFEL) or Perkins Loans.
Will my credit score go up after student loan consolidation?
Your credit score may be impacted by student loan consolidation in both positive and negative ways. With timely payments, it can expedite repayment, potentially reduce interest rates, and eventually raise credit scores.
What is the downside to consolidating student loans?
There may be drawbacks to consolidation as well. For example, if you extend your repayment period, you may end up paying more in interest over time.
Read More :
https://studentaid.gov/articles/5-things-before-consolidating-student-loans/