If you have several student loans, you may be thinking about finding a way to consolidate them into one or two more manageable monthly payments. In the past, we have talked about considerations around consolidation. Here are a few more things to evaluate before you start down the consolidation path:
Private and Federal student loans do not mix. If you have federal and private student loans, realize that you may not want to consolidate them together (or may not be allowed to by some lenders). They can be consolidated separately with Federal Direct Loan consolidation and private student loan consolidation. Federal student loans offer a variety of repayment options which you may not want to give up, while private student loans may offer better interest rates, if you (or your cosigner) have a good credit history.
Two people can consolidate their private student loans into one loan. Any two individuals whose finances are bound together—spouses, domestic partners, or even family—may find it convenient to simplify their loan payments. As the new loan cannot be un-consolidated, though, this is not an option to be taken lightly.
Private consolidation requires a new credit review. A loan consolidation actually opens one brand new loan which pays off your existing loans, so you have all new terms, conditions and—of course—you have to qualify for that lump-sum amount. If you have not built up much of a credit history yet, you may still need a cosigner on your consolidation loan. However, keep in mind that some lenders may offer a “cosigner release” option if you qualify. At Wells Fargo, we also have “borrower benefit” criteria: if the consolidation does not provide some real benefit to the borrower (such as an interest rate reduction or a lower monthly payment), then we will let you know that consolidation isn’t available to you.
Student loan consolidation can be a great tool to simplify your finances, but it is not right for everyone. Evaluate your situation carefully, ask questions, and share your consolidation stories with us. Did you consolidate your loans? What were the benefits to you? Is there anything you would have liked to have known?