College graduates across the country leave school every year with degrees and high hopes – and far too often, mountains of debt. One option for reducing this burden is loan consolidation. The federal government has offered loan consolidation for decades, but recently private lenders have begun offering loan consolidation and refinancing as well. The options for loan refinancing options vary according to the types of loans students have taken and in some cases, their personal credit rating. The list below represents some of the best options available to students to reduce their overall debt burdens, lower monthly payments, or both. Some options might be familiar, but others represent out-of-the box strategics. We also have a review page for student loans here.
Direct (Federal) Consolidation Loans
For students who have solely taken federal loans, direct consolidation loans administered by the federal government can simplify their lives in several ways. First, students can make several payments into a single monthly payment – in many cases based on their income. Second, students who borrowed when interest rates for student loans were higher could lower their overall debt burden. Eligible borrowers can obtain deferment of student loan payments; students who experience financial hardship may apply for forbearance. Direct loans may also be cancelled under specific circumstances. Two important features of direct consolidation loans are that there are no credit checks, and students who have fallen into default can rehabilitate their student loan debt.
Home equity loans represent an unconventional source of refinancing student loan debt. But for students who are also homeowners and who have accumulated significant equity or whose student loan debt is relatively small, home equity loans may provide a means of lowering monthly payments or even reducing overall debt burden. Because home equity loans are guaranteed, borrowers with average credit may find approval easier to obtain than applications for unsecured student loans.
Banks have begun offering consolidation and refinancing loans for private student loans to their current customers. Commercial banks generally require good credit, a creditworthy cosigner or both to approve student loan consolidation or refinancing applications, while small community banks and credit unions may have somewhat more lenient credit requirements. All other factors being equal, borrowers with advanced degrees and high-paying jobs also often experience more success when applying for private bank student consolidation or refinancing loans. The following list indicates several banks offering consolidation and refinancing for student loan borrowers:
Nonprofit and Peer Lending
Nonprofit agencies and peer lending platforms have stepped in to serve borrowers who find that they have been shut out by banks and other commercial lenders for personal and business loans. Recently such borrowers have begun to offer student loans and student loan consolidation. Nonprofit lenders match prospective borrowers with community banks and credit unions. Peer lenders borrow from the crowd funding model to allow prospective borrowers to present their requests to prospective lenders. Nonprofit and peer-to-peer lenders generally each require more detailed personal and financial information from prospective borrowers than commercial lenders. However, such lenders also tend to be somewhat more lenient with credit lending standards, often accepting borrowers with average or fair credit. Some of the more prominent nonprofit and peer lenders are listed below:
Private Student Loan Consolidation Brokers
Intermediary lending platforms such as Lending Tree are well established as personal and commercial lenders. In recent years, similar platforms have entered the scene to service student borrowers who have private loans, matching prospective borrowers with lenders within their networks. As with other commercial lenders, borrowers from private student loan consolidation brokers must undergo a credit check. Some private loan companies also allow students to consolidate federal student loans or to combine federal and private student loan consolidation. However, students who follow this route often lose the option of deferment, forbearance or forgiveness of their loans. Three private student loan consolidation brokers are listed below:
- CU Student Loans Review
- Education Success
- Student Loans Consolidator
Non-Bank Direct Student Lenders
Many new graduates have limited credit histories, but excellent financial prospects. Such students have often been frustrated by attempts to obtain bank loans. Rather than resort to undesirable options such as payday loans, savvy students turn to non-bank direct lenders. Non-bank direct lenders that cater specifically to students represent an excellent resource for student loan consolidation. Such lenders consider students’ earning potential and other factors rather than relying solely on FICO scores in making lending decisions. Such lenders also frequently offer favorable lending terms for students and recent graduates seeking consolidation or refinancing loans. Two non-bank direct student lenders are listed below:
Student Loan Forgiveness Programs
Among the executive orders issued by Barack Obama during his two terms as President is the Pay as You Earn program, intended to provide financial relief to student loan borrowers. Under this program, eligible student loan borrowers are eligible to pay a specified percentage of their disposable income each month. After making the required number of monthly payments, the balance students’ loans are forgiven, regardless of the remaining balance. Students may also obtain deferment and partial or total forgiveness of their student loans by participating in programs such as the Peace Corps and Volunteers in Service to America (VISTA), or by accepting positions as teachers or in other public service sectors.
Considerations for Refinancing or Consolidating Student Loans
For borrowers who are eligible, direct consolidation loans frequently represent the best option for dealing with student loan debt. Qualification requirements are more liberal and repayment plans are more flexible than for private or even nonprofit lending options. Nearly all private student loan consolidation and refinancing programs require applicants to pass credit checks or provide creditworthy co-signers. Prospective borrowers should do everything possible to reduce their debt-to-income ratios and clean up late payments. Students and grads pursuing peer lending and nonprofit programs should be prepared to provide extensive personal and financial information.
The take-home lesson is that if you’re willing to practice due diligence and consider unconventional approaches, re-consolidation or refinancing of your student loan debt is entirely possible. If you’re successful in your efforts, you could significantly reduce the burden of your student loans on your budget.