If you’ve taken out a lot of student loans, student loan consolidation can help you streamline your repayment plan into one new loan. But how long does it take to get approved for student loan consolidation? The short answer is approval can take anywhere between a few days and a few months. It all depends on the type of student consolidation loan and the lender you choose.
There are two types of student loan consolidation: federal loan consolidation and private loan refinancing. The option you choose will determine how long it will take to get approved and get your new loan. Read on to learn more about each.
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Federal student loan consolidation
The Direct Loan Consolidation program is provided by the U.S. Department of Education and works only for federal student loans.
“Consolidating federal student loans means gathering all of the student loans that you have under one new loan, which allows you to only have one monthly payment,” says Jamie Wharton, marketing coordinator for Earnest, a student loan refinancing company.
Your interest rate under a consolidation loan is a weighted average of the rates on your existing loans.”
It can also give you access to certain benefits you didn’t have before.
For example, only Direct Loans provide access to income-driven repayment plans and Public Service Loan Forgiveness (PSLF). If you have Perkins Loans or FFEL Loans, consolidating them using a Direct Consolidation Loan allows you to use those programs. There’s also no credit check, so anyone who qualifies can do it.
“While this makes things easier when scheduling payments, you will not save much money by consolidating alone,” says Wharton. Your interest rate under a consolidation loan is a weighted average of the rates on your existing loans.”
What’s more, the Department of Education takes that weighted average and rounds it up to the nearest one-eighth percent. So, while federal loan consolidation is more convenient and can give you access to certain benefits, you’ll end up paying more over time.
You can apply for Direct Loan Consolidation through StudentLoans.gov. If you don’t already have a Federal Student Aid ID, you’ll need to create one. To apply for consolidation, you’ll need to provide your contact information, permanent address, and income information.
Once you submit, the approval process can take as little as a few weeks or as long as several months in rare situations. Unfortunately, there’s no way to accelerate the process, so it’s important to keep making payments while you wait.
Pros and cons of federal student loan consolidation
Here is a list of the benefits and the drawbacks to consider.
- Provides access to certain benefits through the Direct Loan program
- Creates one monthly payment instead of several
- Allows you to extend your repayment period
- Results in a higher interest rate
- Extending your repayment period means more interest
- Vacates any time you’ve spent already working toward PSLF
Private student loan consolidation
If you have federal or private student loans, another option is to consolidate them with a private lender. This process is usually called refinancing to distinguish it from federal loan consolidation.
“The biggest difference between refinancing and consolidation is that refinancing will give you a new, typically lower, interest rate, which will help you save money over the course of paying off your loan,” says Wharton.
The biggest difference between refinancing and consolidation is that refinancing will give you a new, typically lower, interest rate, which will help you save money over the course of paying off your loan”
To qualify, though, you usually need a strong financial profile and great credit. Apply with multiple lenders and improve your chances of getting approved. You can always get a cosigner to help improve your chances of getting a low interest rate, but there’s no guarantee.
When you apply, you’ll typically get a conditional approval within a few minutes of submitting your application. The conditions are that you’ll need to send documentation of your student loan balances, your income and employment, and other facts the lender wants to verify.
The faster you submit this information, the sooner you’ll hear back. In the meantime, the lender will also gather information from your current lender and get things set up to pay off your current loans.
This whole process can take a few weeks, especially if you hit some snags along the way. But if you do it right, you could simplify your repayment plan and save money along the way.
That said, you’ll lose any benefits you currently have on federal student loans, so carefully think about what you give up if you refinance.
Pros and cons of private student loan consolidation
Here is a list of the benefits and the drawbacks of private student loan consolidation.
- It’s possible to get a lower interest rate
- You can improve your chances of getting a lower rate with a cosigner
- You’ll have just one monthly payment instead of several
- Eligibility requirements are restrictive
- You can lose federal loan benefits and protections
- You’ll need to refinance again if you want to change your monthly payment
Is student loan consolidation right for you?
Consolidating your student loans is not a quick process. But depending on your situation, the time and effort can be well worth it, in terms of savings or simplicity. But whether you choose federal or private consolidation, there are some pitfalls to watch out for.
“If you have benefits with your original federal loans, you could lose them when consolidating,” says Wharton. “You should look into the benefits you would lose or gain by consolidating, and whether or not refinancing your loans could make up the difference.”
And if you’re considering federal loan consolidation, note the higher interest rate and other drawbacks. Regardless of which option you choose, doing your research beforehand can save you a lot of time and headaches.