Consolidating Private Student Loans

As a rule, you can not consolidate your private student loans with any federal student loans you may have because of variations in interest rates and benefits. The main benefit of taking out such a loan is that you will be making one monthly payment when it takes effect, and since the term of the loan will be reset, the amount of interest to be paid over the lifetime of the loan will increase. At the same time, taking this step could help you avoid late fees and penalties in the future as well.

Because they usually have shorter payback periods and higher interest rates and lack certain protections when compared with federal loans, you will probably want to consolidate your private student loans for the good overall effect doing so will have. This is especially true if your private loans exceed $5,000 or equal more than 8% of your income as you might be in danger of defaulting on those loans.

Reason To Consolidate
The interest rate on your consolidation loan will depend on your credit score, and if it improves significantly (50-100 points at least), you may find that you can obtain a lower interest rate by consulting a new lender or approaching your current lender (who may not want to lose your business) to consolidate. Also, under federal law, individuals can now receive an income tax deduction of up to $2,500 for the interest they pay on student loans.

A private education loan generally has a variable interest rate resembling that of a home-equity loan with a fixed rate, and if you are in that situation, you might be able to lock in the interest rate with a home-equity loan and benefit from the difference between the two types.

Finding The Best Way To Consolidate Private Student Loans
If you decide to work with an education lender to consolidate your student loans, they will determine the interest rate, rather than the federal government, and you may need to pay additional fees for creating your new loan. When you research your private consolidation loan, determine whether the interest rate is variable or fixed, and find out if there are any fees or prepayment penalties. All education loans allow for prepayment that is penalty free, and you will be able to make extra payments to reduce the principal, or pay the loan off entirely, without incurring an extra fee.