Juggling Debt? Here’s How to Consolidate Student Loans

If you’re a fellow Millennial or Gen Zer, congrats on being the most highly educated generations to date. I’m so proud of us. Unfortunately, our reward is likely five to six figures in student loans, plus interest. Cue the confetti! 🎉

While we can’t snap our fingers and make student loans go away (I wish!), loan consolidation can help you get a lower interest rate, reduce your monthly payments, and help you achieve the American dream of retiring before you’re 110.

The (Egregious!) State of Student Debt

The average starting salary for recent college grads is around $50,000, but for many of us, it’s much lower. Managing to keep yourself alive on an entry-level salary is hard enough. To make matters worse, the average college student graduates from a four-year degree with about $32,000 in student loans, and that number is only rising.

That comes out to nearly $400 per month, which is more than my parents paid in rent at my age. Not only does that monthly payment burn through our precious wine budgets, it also makes it really hard to do luxurious things like pay rent, buy groceries, and save money.

So, if fitting your student loan payment into your monthly budget feels like Advanced Calculus, you’re not alone.

In fact, there are 44.7 million Americans in the same sinking boat. It can feel like there are no feasible options to be able to afford rent, food, monthly loan payments, and *gasp* the occasional treat. But consolidating your loans is one of the simplest ways to reduce your monthly loan payment and make more wiggle room in your budget for your monthly expenses, savings, and maybe even some gosh darn fun!

Is it Time to Consolidate Your Loans?

Listen, we all have a hate-hate relationship with our student loan debt. But, how do you know when it’s time to consolidate? Here are a few tell-tale signs:

1. You have a chronic headache by the tune of multiple monthly payments for several separate student loans.
2. Your current loans have high interest rates. It feels like interest is eating up the majority of your monthly payments and nothing is going to your principal.
3. You have a good credit score, but you’re strongly considering joining an MLM or selling a kidney, in addition to your full-time job, in order to make your monthly payments work in this economy.

If that sounds like you, learning how to consolidate student loans might be the right choice. But before you jump in, it’s always good to weigh your options.

The Pros

• Combining multiple student loans into one single loan means only having to pay one monthly payment. Thank goodness!
• You can compare lenders before consolidating. Many private lenders offer competitive interest rates, ranging from 2% to 9%, which means more of your monthly payment is actually going to your principal.
• Between lower interest rates and having a single loan, consolidating often lowers your monthly payment significantly, without having to pay off your student debt for the rest of your life.

The Cons

• There’s really only one downside. If you are refinancing a federal student loan into a private loan, you will lose the option to tie payments to your income and opportunities for loan forgiveness (which are pretty slim to begin with).

How to Consolidate Student Loans Debt

If you’ve gotten this far and you’re feeling like “hey, this loan consolidation thing sounds pretty good” then here’s what to do next.

Step 1: Make sure your loans are eligible for consolidation. Here are a few requirements to keep in mind:

• Your loans must currently be in repayment or the grace period.
• You cannot consolidate a consolidation, unless you are adding an additional eligible loan to your previously consolidated loan.
• You can combine private and/or federal loans into one private loan.
• You typically need a credit score at least in the high 600s to qualify, but standards can vary between lenders.

Step 2: Compare lenders. You can consolidate your loans through the federal government, traditional banks and credit unions, but only banks and credit unions offer the perks of private student loan consolidation.

Credit unions typically offer the lowest interest rates and make it easier to qualify for loan refinancing. Plus, unlike traditional banks, the credit union model is designed to give money back to its members. Many credit unions will return a percentage of paid interest to you at the end of every year. And really, what could be better for Christmas than getting your own money back?

Step 3: Make sure your finances are in good shape, especially your credit score. Most lenders will look for a credit score in the upper 600s. So take the time to make sure your credit score and financial history fit the bill before sending in your application.

Step 4: Apply with the lender that best suits your needs. Whether that’s a low interest rate, membership perks, or longer repayment options, make sure the lender you choose is someone you can trust. After all, you’re going to be working with them for the next 10+ years. So be picky. Like choosing-a-significant-other-for-your-best-friend picky. You’ll thank yourself later!

The End in Sight

When you’re knee deep in student debt, it can feel like there’s no end in sight. Especially when the cost of being alive is already so unmanageable. While there’s no quick fix, consolidating your student loans can help you manage your debt more easily without having to put your entire life on hold.

Credit unions offer lower interest rates and monthly payments when you refinance your student loans. Plus, they reward members by giving interest back to you at the end of the year.