Private Student Loan Consolidation - Resources for 2019

Definition: A private student loan consolidation is a non-federal, credit-based loan that allows you to combine multiple student loans together. This can be a combination of federal and private debt. Repayment terms are typically extended (usually up to 20 years) and interest rates are often competitive.

A private consolidation loan combines several private student loans into a single, more manageable loan. It is similar to a traditional refinance, where a new loan with a new interest rate pays off the existing loans. Private student loan consolidation can streamline repayment by replacing multiple payments with a single monthly payment. It can reduce the pressure on the borrower’s budget by reducing the monthly loan payments (albeit by stretching out the term of the loan and increasing the total payments). It can cut the cost of the loan if the borrower qualifies for a lower interest rate.

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In order to qualify for private student loan refinancing, lenders require a strong credit score with proof of income and employment history. In some cases a cosigner may be required. Also, if you have adverse credit history, including a prior student loan default*, you may not be eligible. * Default = 270 days late/missed payment on a federal loan and typically 90 days late/missed payment on a private loan(contact your lender for exact definition of default).

Benefits of Private Student Loan Consolidation

  • Streamline Repayment: Replacing multiple loans with a single loan streamlines the repayment process by reducing the number of monthly loan payments.
  • Lower Monthly Payments: A private consolidation loan often provides the borrower with the opportunity to reduce the monthly payment by extending the repayment term of the private student loan debt. While extending the term of the loan can make the monthly payments more affordable, it can also make the loan more expensive by increasing the total interest paid over the life of the loan.
  • Reduce Interest Rates: If the borrower’s credit score has improved, the borrower might be able to qualify for a lower interest rate. Typically, a borrower’s credit score will decrease with each year in school because the credit utilization has increased. By the time the borrower graduates, the credit score is at its lowest point and the interest rate has peaked. If the borrower gets a good job and repays all of his or her debts, not just student loans, on time and as agreed, the borrower’s credit score should improve significantly within a few years of graduation. At that time the, borrower may be able to qualify for a lower interest rate by consolidating with another lender.
  • Cosigner Release: If the borrower obtains a private consolidation loan without a cosigner, the new loan pays off the old loans, effectively releasing the cosigner from his or her obligation. It can be difficult for a borrower to qualify for cosigner release on his or her private student loans. Consolidation offers another route to cosigner release.
  • No Prepayment Penalties: Federal and private student loans, including private consolidation loans, do not have prepayment penalties.

Impact on Loan Payments

This table shows the potential reduction in the monthly loan payment and increase in the total loan payments with a private consolidation loan. The table assumes a fixed 6.8% interest rate.

Loan Amount Monthly Payment
(15-Year Term)
Monthly Payment
(25-Year Term)
Decrease in
Monthly Payment
Increase in
Total Payments
$10,000 $88.77 $69.41 $19.36 $4,844
$30,000 $266.31 $208.22 $58.08 $14,532
$50,000 $443.84 $347.04 $96.81 $24,219
$75,000 $665.76 $520.55 $145.21 $36,329
$100,000 $887.68 $694.07 $193.61 $48,439