Things You'll Need:
- Phone or internet connection
- All of your student loan information (lenders, current interest rates and payment amounts.)
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Step 1
Step 1 – Evaluate your loans
The first step you should take is deciding whether or not you SHOULD consolidate your loans. Take good stock of what kind of loans they are, and the dates they were dispersed as well as how much you owe.
If you aren't sure about this information, you get details of your student loans by going to the National Student Loan Data System. This is the Education Department's central database for student aid: http://www.nslds.ed.gov. -
Step 2
Step 2 – Evaluate your financial position
If you are not financially able to start paying off, or keep paying on, your loans, you are eligible for financial hardship deferments and forbearance. If you consolidate your loans, you loose your ability to defer payments, so make sure you are ready and able to make your monthly payments for 10 or more years before you consolidate -
Step 3
Step 3 – Decide which loans you should consolidate
The general rule of thumb is that you should consolidate any Stafford loans that were disbursed BEFORE July 1, 2006. Graduates who consolidate Stafford federal student loans during their grace period (within six months after graduation) are eligible for a 0.6 percent interest rate reduction. Stafford loans disbursed after July 1, 2006 are fixed at 6.8 percent, so there is no need to consolidate them.
If you consolidate Perkins loans, you lose repayment benefits like loan forgiveness and a nine-month grace period, as well as subsidized interest during any deferment periods. They also have a 5 percent fixed rate, so there is not an advantage to consolidating them. -
Step 4
Step 4 – Do your research!
This step will take some leg work on your part. The Web is your best resource, and there are many things to watch for when choosing a lender.
Most lenders will reduce your interest rate if you make a certain number of on-time payments, but there's a catch. You have to make all of your payment on time for the life of the loan. Miss even a single payment and the discount could disappear. -
Step 5
Step 5 - Find a lender to consolidate with
Make a list of lenders to comparison-shop offers to research. Don't just rely on the preferred lender list from your school.
A good source for lenders is SimpleTuition (http://www.simpletuition.com). Here you will find a database of lenders who have paid a fee to be listed on this site. There is no fee for borrowers to use the site.
Once you have narrowed down your choices, use the loan analyzer at Finaid.org (http://www.finaid.org), which will break down the discount rates in real dollars. Take the time to fill out the calculator carefully so you can get a good idea of what each lender's discount is worth over the long term. -
Step 6
Step 6 – Call the lender
Talk to a person on the phone with the company you are considering. Don’t only fill out online or mail in forms. When discussing the terms of the loan, your research will pay off, and you may be able to negotiate additional lower interest discounts if you have similar offers from other, reputable, companies.
When you talk to them you will be given repayment term options, likely between 10 to 30 years. Beware that stretching out the loan will mean a lower monthly payment, but it also means increasing the COST of the loan overall. Lenders will try to encourage you to stretch out payments, because they will make more money off the loan. You can always insist on your own payment terms. If possible, keep it closer to 10 years.
Conclusion:
This may seem like a lot of time and effort, but it will pay off in the end to do your research now, and find the best consolidation loan. You will be paying this debt for many years, and will want to know you have made the best decision.
