Your Guide to Student Loan Consolidation

Student loans, and subsequent student debt, are prevalent in the United States. Although the federal government finances students through the Department of Education, there are several other options for borrowers.

Many students take out loans from private institutions to gain more access to funding. While private lenders may offer up to 100% of attendance costs, multiple loans often cause significant financial hardship when it comes to repayments.

Find out how to consolidate your student loan into a single loan and set yourself up for financial success after graduation.

What is Loan Consolidation?

Loan consolidation is the process of taking out a new loan that encompasses multiple debts. The process involves applying for the sum of the money owed on existing debts. When it’s approved, the funds cover all debt balances. The borrower then has a single payment to pay overtime, making it easier to manage debts.

Why Consider Student Loan Consolidation?

Private student loans often have different repayment terms than federal student loans. Federal loans tend to be quite flexible when it comes to repayments. For example, some loans offer income-driven repayment plans. This means the repayment rate is based on the student’s salary when they graduate from college.

Private companies also offer a variety of terms and repayment plans, such as interest-only or fixed structures for monthly payments.

Managing multiple student loans from different providers can get overwhelming. Varying interest rates, repayment terms, and other stipulations are challenging to track. Student loan consolidation or refinancing helps you to regain control of your debts. It allows you to combine all current loans into a single monthly payment at a new interest rate.

When is Loan Consolidation Worthwhile?

Student loan consolidation is worthwhile if you have loans from various institutions, including the federal government or online lenders. Incremental improvements in your credit score often qualify you for reduced interest rates, more favorable terms, and lower overall monthly loan payments.

While consolidation often involves increasing the length of your repayment period, a single monthly repayment with a lower interest rate is typically more manageable than multiple loans with varying terms. You can also change variable rate loans to fixed-rate repayments when consolidating.

Consolidating non-direct loans may give you public service loan forgiveness (PSLF) access. Forgiveness programs cover remaining debt balances on direct loans once you have completed 120 payments as part of a qualifying repayment plan while working for a qualifying employer.

Qualifying employers include US federal, state, local, tribal government, or not-for-profit organizations. This includes active duty military service.

Types of Student Loans

There are three main types of student loans. Depending on the cost of your education, your financial needs, and the cosigner’s credit score, you may opt for a certain type of loan. Certain federal loans are only available to those who need financial support.

Federal education loans

The US government provides all federal education loans. Every year, Congress sets the interest rates. Federal loan rates are standardized, meaning any student eligible for a loan in a particular year pays the set rate. These student loans typically have low interest rates and flexible repayment arrangements.

The standard repayment term is a 10-year plan. However, federal student loan borrowers can extend or adjust to an income-based repayment system after graduation. Students fill out and submit a Free Application for Federal Student Aid (FAFSA) form to apply for a federal loan. The school or college then responds with a financial offer.

The offer is based on the information provided in the FAFSA. Two of the most critical factors are expected family contribution (EFC) and cost of attendance (COA). EFC includes a family’s income, assets, and social benefits. COA includes mandatory school fees, tuition, accommodation, and other academic costs. The financial offer may include federal Pell Grants and other available subsidies.

There are four standard types of federal programs:

  • Direct Subsidized Loans: Direct subsidized loans are intended for students with serious financial difficulties. The federal government subsidizes loan interests, making repayments more manageable. Students don’t pay interest on these loans until they graduate. They are then afforded a six-month grace period, allowing them to get a job and earn money before starting their federal loan payments.
  • Direct Unsubsidized Loans: All students are entitled to apply for direct unsubsidized loans, no matter how their credit history looks. With unsubsidized loans, interest builds immediately after you receive the money and continues until you repay the loan in its entirety.Direct loans are very popular because they typically don’t require a credit check. You receive direct compensation with a low, fixed interest rate, and you can arrange a flexible federal student loan repayment plan. However, there may be strict rules around how you can spend your funds. You must submit a FAFSA application each year to remain eligible for compensation.
  • Direct PLUS Loans: PLUS loans are for parents of students rather than the students themselves. They often cover the entire cost of college and are available at low and fixed interest rates. PLUS loans offer deferment options, allowing loanees to delay payment until graduation. Graduate students and working professionals who are also students may apply for PLUS loans.
  • Direct Consolidation Loans: Direct loan consolidation is the process of combining two or more federal loans into a single payment. Interest rates are fixed with federal student loan consolidation, depending on the average interest rate on the loans you consolidate.

However, you may also consolidate federal loans with private financial institutions, like T&I Credit Union. Refinancing privately often results in lower interest rates, leading to long-term savings. Although the government provides federal loan protections, consolidating with a reliable private lender doesn’t carry significant risk.

Private Student Loans

Private student loans

Private education loans are provided by financial institutions such as credit unions and banks. Private lenders typically require proof to show an ability to repay the loan. Students often apply for private student loans with a parent or guardian as a cosigner. A strong credit score or good debt to income ratio helps secure the best interest rates.

At T&I Credit Union, we provide private student loans through Student Choice. Applicants can qualify for funding for their undergraduate degree through one straightforward application. As a non-profit organization, the customer is our number one priority. We offer competitive variable interest rates based on the Prime index.

Students can borrow up to $75,000 to cover their education costs. The private loan term is flexible and typically lasts between 20 and 25 years.

Refinance student loans

Student loan refinancing is available to graduates who demonstrate financial stability and the ability to repay the original loans. Private student loan financing is available from a variety of sources. Many financial institutions, like banks, require a good to excellent credit score to consider private student loan refinancing. According to Experian, a score of 670 or more is usually sufficient.

Another key factor in determining your repayment rate is the weighted average of your existing loans. This figure considers the amount owed per loan under each interest rate. For example, if you have one loan that’s $8,000 and one loan that’s $2,000, the $8,000 loan’s interest rate would be weighted more heavily than the $2,000 loan.

A Credit Union Can Help With Consolidating Student Loans

At T&I Credit Union, we provide student loan consolidation services. Whether you’re paying off federal, private, PLUS, or a combination of loan types, we can help you consolidate into a convenient single payment. Our variable interest loans may even result in an overall rate reduction in student loan payments.

Our private student loan consolidation application process is simple. Begin your application by checking if you have eligible loans through our online form. We offer private consolidation loans with a value of up to $100,000.

We also offer consultation services. One of our experienced counselors provides one-to-one support, discussing your financial options. If you have any concerns over financial aid, repayment options, or any other refinancing queries, contact our College Counselor team.

Requirements For Student Loan Consolidation

Federal loan consolidation programs only apply to federal student loans. If you’ve taken out additional private loans to help cover your education costs, applying for consolidation through the federal government is not an option. Since credit unions are non-profit lenders, they are an excellent refinancing choice.

At T&I Credit Union, we offer flexible student loan refinancing, helping you find a more manageable way to control your debts. Pending a credit check, we currently offer rates between 5% and 6.5% for a 15-year repayment term.

We understand the importance of restructuring your loan quickly and proudly offer a rapid turnaround time for consolidation. A typical student loan consolidation application timeline is as follows:

  • Day 1: Loanee submits their initial loan application.
  • Days 2 to 16: T&I Credit Union reviews and verifies the submission.
  • Days 17 to 31: T&I Credit Union processes and finalizes the loan.
  • Days 32 to 42: T&I Credit Union disburses funds to the original lenders.

Once this process is complete, the repayments begin.

For loan refinancing eligibility, you must provide proof of graduation from an approved school. You must also be a member of T&I Credit Union. Although you may apply for loan refinancing as a non-member, you’re required to join the credit union before being entitled to funding. Before applying for a loan, read through our full eligibility requirements.

Partnering With T&I Credit Union

Student loan refinancing may seem complicated, especially when you’re juggling payments to multiple lenders. Fortunately, with a T&I Credit Union by your side, you can take charge of student debt and secure a payment plan and structure that works for you.

T&I Credit Union is a leading financial services provider in the Detroit Metro area, offering competitive student loan refinancing options. Governed by an elected board, we strive to serve our members with high-quality customer service and even better rates. We provide personalized support and many additional member services, from online banking to financial counseling.

We’ll work to find an affordable student loan refinancing plan that works for you.

About Marsha Smith

Marsha Smith was born and raised in Ohio, where she obtained her Bachelor of Arts in Public Affairs. She is passionate about financial literacy and helping other young people navigate student loans, car payments, and buying a home.

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