Student Loan Consolidation 101

Congratulations, grad! You made it through four (or more) years of hard work and dedication and can now call yourself a college graduate. As you start your career and embark on this exciting new chapter, don’t forget to complete one of your last college assignments: paying off your student loan debt.

If the amount of student loan debt you carry makes you feel overwhelmed, you’re not alone. Student loan debt has been cited as the top concern for Millennials, and for good reason. According to Forbes, the nation has racked up a staggering $1.5 trillion in student loan debt in 2019, with recent graduates owing an average of $28,650 each.

One way to reduce the financial burden from student loans is to consolidate your debt into a single loan with student loan refinancing.

Student loan debt consolidation

College is expensive, which is why many students and parents take out a variety of student loans, both from the government and private lenders. Consolidating your student loan debt is the process of combining all your loans into a single new loan. When you consolidate debt, you will get a new loan with new terms and a single monthly payment. This makes paying off student loan debt a little less painful.

There are two student debt consolidation options to consider, depending on the types of student loans you need to pay off. To know what’s right for you, first you’ll need to understand what types of student loans you currently have, and the terms of those loans.

Here are some questions to help you get started:

• Do you carry federal government student loans, like the Stafford Loan or Perkins Loan?
• Do you have private student loans from a financial institution that aren’t from the government?
• What are the interest rates on each student loan?
• Are the student loan interest rates variable or fixed? (Hint: Variable interest rates can change over the course of the loan, while fixed interest rates stay the same.)
• What are the repayment period terms? (Hint: How fast do you need to pay them off, and when do you need to start paying them back?)

Benefits of student loan consolidation

Consolidation can help you get ahead financially in several ways.

• Lower, fixed interest rates: Interest rates may have dropped since you originally obtained your student loans. Consolidation allows you to take advantage of those lower rates. Also, replacing variable-rate loans with a fixed-interest loan eliminates the risk of a future interest rate jump, which can increase your monthly payments without notice.
• Reduce monthly payments: The repayment period for most student loans is 5 to 20 years. Through consolidation, you may be able to extend the repayment period, which typically reduces your monthly student loan payment. The catch, of course, is that you end up paying more in interest because your term is longer.
• Customize repayment schedule: Some private loans allow you to tailor your monthly payments to your current income and gradually increase your payments over time. This can be a great option if you are just getting started and earning an entry-level salary but expect to earn a higher income in the future.
• One monthly payment: Rolling your student loans into one payment helps you keep tabs on the total owed and the progress you’re making.

Student debt forgiveness

The William D. Ford Direct Loan Program (FDLP) allows for flexible repayment schedules based on incomes, but actual student loan forgiveness is rare. Graduates who pursue public service careers can have their loans forgiven after 10 years of payments. And low-wage earners who make payments for 20 years may have the remainder of their debt forgiven. But the truth is, most college graduates must repay every borrowed dollar. Fortunately, there are ways to make student loan repayment more manageable.

Option 1: Direct Consolidation Loan program

If your student debt consists solely of federal government loans with fixed rates, you may want to consider the government’s Direct Consolidation Loan program. This program allows borrowers to continue to qualify for some terms of the original loans, like being able to defer initial loan payments until after graduation or qualifying for lower monthly payments.

Option 2: Consolidate student loans

Do you have a combination of private and federal student loans? Or maybe older student loans with higher or variable interest rates? Look into student loan consolidation from a private lender like Needham Bank. At Needham Bank, we have been helping grads refinance and consolidate their student loan debt for years. You could be eligible for an automatic $200 cash bonus once your loan is secured if you choose to refinance with CommonBond.

For many college graduates, student loan consolidation makes sense.  We’ve partnered with CommonBond to make straightforward and transparent student loans possible for you. It only takes a few minutes to get a free rate quote with CommonBond’s easy online application. By starting an application, you agree that CommonBond may share information like your name, phone number, and email address with Needham Bank. Apply Online