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FAQ's: Private Student Loan Consolidation

FAQ’s: Private Student Loan Consolidation 

Private consolidation loans are credit-based, non-federal student consolidation loans available for qualified students to help lower monthly payments and extend repayment terms. Students existing loans are consolidated into one payment made to one lender under terms that are more favorable to graduates.

Eligibility

  • U.S. citizen or permanent resident
  • Enrolled at a lender-eligible school
  • Creditworthy (or a creditworthy co-signer)

Eligibility requirements for private consolidation loans will vary by each lender, but most lenders require you to be a U.S. citizen or permanent resident, as well as graduated from an eligible school.

Each lender has established credit requirements in order to qualify for a private consolidation loan.  Always ask what these requirements are prior to starting an application to ensure that you meet each individual lenders student loan consolidation requirements.

Applying with a creditworthy cosigner is always recommended for the consolidation of student loans to ensure borrowers qualify for the lowest interest rate possible based on a lenders credit requirements, even if you are creditworthy without a co-signer.

Private Student Loan Amounts

Minimum and maximum loan amounts will also vary with each lender, but many private consolidation loan programs will cover up to $125,000 in undergraduate debt and up to $175,000 in graduate debt.

Rates & Fees

Most private consolidation loans are variable-rate loans, with interest rates varying by lender. Your interest rate may adjust monthly, quarterly, annually, or at some other interval as designated by your lender.

The interest rate on a private consolidation loan is generally determined by adding a variable index (such as LIBOR or T-bill) to a fixed margin. The margin used to determine your private consolidation loan interest rate can vary depending on your creditworthiness. Borrowers who are deemed more creditworthy typically qualify for lower margins and thus lower interest rates.

Fees, like interest rates, will also vary by lender. The types of fees assessed, as well as the amounts charged, will depend on the lender and may also depend on your creditworthiness.

Here are some common lender fees you may run into, but keep in mind that not all lenders will charge all these fees:

  • Application Fees: Fee charged in order for you to apply for a private consolidation loan. Paying an application fee doesn’t guarantee approval of your application.
  • Origination Fees: Fee charged in order for a lender to issue you (“originate”) your private consolidation loan. Origination fees are often added into your loan amount. The origination fee you pay may vary depending on your creditworthiness — borrowers with stronger credit may pay lower origination fees than those borrowers with weaker credit.
  • Repayment Fees: Depending on your creditworthiness, some lenders may assess a repayment finance charge at the time that your private consolidation loan goes into repayment.

Repayment

Questions to ask when researching private consolidation loan options:

  1. When does repayment begin?
  2. Are there any prepayment penalties?
  3. Are there any forbearance or deferment benefits?

Repaying Your Private Consolidation Loan

Most private consolidation loan programs require payments to be made within 60 days of existing loan payoff.  Some private consolidation loans allow you to make interest only payments while others require principal and interest payments. Typically borrowers will pay less interest by choosing a principal and interest payment rather than an interest only option.

Prepayment Penalties

Most private consolidation loans do not carry prepayment penalties. A prepayment penalty is a fee assessed if you pay off your student loan early.  Be sure to ask the lender if a loan you are applying for carries a prepayment penalty.

Forbearance & Deferment

Forbearance and deferment benefits allow you to postpone making your student loan payments. Forbearance and deferment options will vary depending on each lender for private consolidation loans.  Be sure to ask the lender if a loan has any forbearance or deferment options, as well as the eligibility requirements.