Consolidate Private Student Loans

Popular question is if you can consolidate private student loans. The answer is yes you can, however there are some things to consider when consolidating private student loans. The main advantage to consolidating these loans is a single payment. It may also be possible to extend the term of the loan and receive lower payments, however by extending the term of the loan you will pay more in interest over the life of the loan. Note that interest rates are not fixed like when consolidating federal loans. When you consolidate private student loans, the interest rate is based on your credit score. Once you have graduated and have a good job you can establish a good credit score, which can result in a lower interest rate then the loans you were able to obtain while attending school.

Although some companies may offer to consolidate your private college loans with federal student loans, this is generally a bad idea. Since private student loans cannot be consolidated on terms of federal consolidation loans, the companies normally consolidate the federal loans to the higher interest private loan and you lose many of the benefits of the federal loans.

If you have private and federal loans, the best approach is to consolidate your federal loans and then consolidate your private student loans separately. This will still result in two loan payments, but this will provide you with the best interest rate resulting in your paying less over the duration of the loans.

When consolidating private student loans, be sure to ask the lender about fees. Lenders often add origination fees, disbursement fees, etc. Also be sure to ask about prepayment penalties and if the interest rate is fixed or variable. Rates for private loans are usually based on the prime rate or the three-month LIBOR rate. Be careful not to get caught in the advertising trap. Since these rates are different you may see a company advertise prime plus 0% instead of three-month LIBOR plus 7% since the plus 0% may be more appealing to consumers. However since the prime and LIBOR rates are not the same, the LIBOR rate plus 7% may actually be a lower rate then the prime rate plus 0%. The rates do vary from company to company so it usually pays to compare several companies.

There are other options for your private student loans consolidation. Many people roll their private student loans into a home equity loan. Another, fairly new, option to consolidate private college loans is a website called Prosper.

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