Can I Consolidate Federal and Private Student Loans?

Q: Can federal and private student loans be consolidated together? Can I combine these two loan types?

A: The answer is no. Private student loans and federal student loans generally cannot be combined in the same way that federal student loans can be consolidated.

And ever if a lender offers to combine your federal and private student loans, you should not do it.

The reason is that the Federal Consolidation Loan offers much better interest rates and benefits.

However, it might be a good idea to consolidate these two types of loans separately.

By consolidating your loans, you will combine your loans into a new single loan, often with a lower monthly payment and an extended repayment period. Be aware that by extending your repayment period, you may have a lower monthly payment but you may also pay significantly more interest over the life of the loan.

Federal student loans like Perkins and Stafford loans can be combined into a Federal Consolidation Loan. The Federal Consolidation Loan offered by the government usually comes with attractive fixed interest rates. These low rates are not available to private student loans.

Private student loans on the other hand, can only be consolidated with Private Student Loan Consolidation which is an option offered by several banks. Private student loans normally come with variable interest rates, and when consolidated, the new Private Student Consolidation Loan with also have a new variable rate.

So if you consolidate your private student loans, it is every important that you understand what your current interest rate is as well as the new consolidated rate you are being offered.

Also, unlike the Federal Consolidation Loan program, you must be able to pass a full credit check to qualify for a Private Student Consolidation Loan. This credit check will likely involve your credit score, income, employment, and outstanding debts.

Since private student loan interest rates are based on your credit score, you may be able to secure a lower variable interest rate by consolidating if your credit score and financial aid situation has improved since you originally applied for your private loans.

If your credit score or income situation has deteriorated since taking out those loans, be careful. Your new Private Loan Consolidation interest rate may be higher than your current variable rate.

If this is the case, think twice before consolidating private student loans because a lower interest rate can be more important than a lower monthly payment. If you can afford your private student loan payments, you might choose not to consolidate if it means a higher interest rate.

A Home Equity Loan May be an Option: If you are a homeowner and have home equity, you might consider paying off all of your student loans with a home equity loan. This is another option for people who want a single payment and a fixed interest rate.

To learn more about federal student loan consolidation, visit: www.loanconsolidation.ed.gov

To learn more about private student loan consolidation, call your lender or loan servicer for details. If they do not recommend a lender who offers private student loan consolidation, try a Google search. Several major banks do offer this option and will be able to help you. Before you accept any Private Consolidation Loan, be sure that you understand what your new interest rate will be, whether the rate is variable or fixed, what additional fees may be charged, and what your new monthly payment will be.