Over the last several weeks, I've had 2 different readers reach out about student loan consolidation. Both of them were going down a scary path with not very reputable student loan consolidation companies. In fact, one company was simply a student loan scam.
We’re going to talk about the right and wrong way to go about consolidating your student loans, but I want to highlight something first. You can do this yourself for free. But at the same time, it can be confusing. If you want to pay for help, that’s fine too – there are companies that can help you.
If you choose to work with a student loan assistance or consolidation company, make sure you are careful with your selection process. As I’ve said in other articles, Ameritech Financial has proven to be a trustworthy company that I have personally inspected and found to be legitimate in their service offerings – but these examples below show the opposite end of the spectrum.
I want you to check out these stories, and really pay attention to what's going on here. Student loan consolidation is an option, but these stories also reflect a lot of the other things we've been talking about lately – being financially negligent while in school, and the need to setup side hustle income streams. Then, there is the problem of student loan debt on top of it.
Check out these stories:
Needless to say, student loan debt consolidation is high on borrower's minds, and there is definitely a right way and a wrong way to go about doing it.
The Wrong Way to Consolidate Your Student Loans
Let’s start with the wrong way. Remember, scammers (and even sometimes legitimate companies) take advantage of people when they are struggling the most. So, if you’re buried in student loan debt, and feel like you don’t have any options, you would turn to anyone to help you.
It's important, though, that you understand what you can and can't do.
Consolidating Your Federal Student Loans
If you have Federal Student Loans, there is only one way to consolidate that loan.
The only way is to go through the Federal Direct Consolidation Program. If any random program or company tells you otherwise, they are out to scam you or simply may not have your best interest in mind.
Second, if anyone tells you that you can lower your balance from loan consolidation, not make payments, or do anything else “magical”, they are lying to you as well. Remember, there is no escaping your student loan debt, but there are options that can help you repay them in a much more manageable way.
Consolidating Your Private Student Loans
You have more options when it comes to private student loans. However, private loans should not be consolidate with Federal Student Loans (in most cases). If you have both, you should address each type of loan separately. He's our guide to when it makes sense to refinance Federal student loans.
There are many more lenders when it comes to private student loans, and you have to shop around for interest rates and fees, just like you would have to with a car loan. Do your due diligence if you want to go this route by using Credible, a marketplace for student loan refinance. With Credible, you can receive and compare offers from most of the lenders in the student loan refinance industry by completing one simple form.
The Right Way to Consolidate Your Student Loans
Okay, now that you know what NOT to do, here's how you can actually go about consolidating your student loans, and figuring out if it's even worth it. Before you consider consolidating your student loans, make sure that you've already looked into student loan forgiveness programs, since most borrowers typically qualify for some type of student loan forgiveness.
How To Consolidate Your Federal Student Loans
You can get Federal Consolidation loans for multiple loan types, including FFELP (Stafford, PLUS and SLS), FISL, Perkins, Health Professional Student Loans, NSL, HEAL, Guaranteed Student Loans and Direct loans. There is no cost to consolidate Federal Student Loans.
You have to go through here: Federal Direct Loan Consolidation
When you consolidate your loans, your interest rate will be an weighted average of all the loans being consolidated. You also can qualify for a 0.25% interest rate reduction if you sign up for automatic payments.
So, if you have $10,000 at 6.8%, and $20,000 at 3.4%, you would end up paying 4.5% on your new $30,000 loan. However, realize that the underlying cost structure doesn't change, and you will still end up paying the same amount of interest over the life of this new consolidated loan compared to the underlying loans.
Once again, there is no getting out of the loan. A Federal Consolidation Loan simply streamlines your payments.
If you don’t want to do it yourself, as I’ve said above, use a company like Ameritech Financial. They will ONLY consolidate loans that need to be consolidated. For example, if you hold Federal Family Education (FFEL) loans and need to qualify for Public Service Loan Forgiveness, they’ll be able to assist you in the consolidation of said loans. They’ll be able to work with you throughout the entire consolidation process, and since fees are paid through a 3rd party escrow account, they won’t get paid until the consolidation is completed.
If you want to get in touch with them, their number is 1-866-863-3870, or setup a free consultation on their website.
How To Consolidate Your Private Student Loans
Private student loans are a bit of a different game. They are much more like car loans or home loans. There are different interest rates and fees offered by different banks to student loan borrowers.
If you have private loans, it can really pay off to shop around and find a great rate for a consolidation loan. As mentioned above, Use Credible to find a great student loan consolidation and refinancing rate. Credible is a marketplace for student loans where you can receive offers from multiple lenders after filling out a simple form. Credible vets everyone they work with so they only work with quality lenders.
To make it even easier, they have a free student loan refinancing savings estimator that you can use to see if it will help you save money. With no pressure, you can see if student loan consolidation and refinancing is even worthwhile.
So, don’t fall for these scams – use a reputable company to consolidate your student loans and make sure that you’re getting a good deal!
If you have more questions on getting out of student loan debt, check out my Definitive Guide to Student Loan Debt.