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Student Loans : Student Loan Consolidation Guide

Consolidate Student Loans

Student Loan Consolidation Guide Step 5: How to Consolidate Student Loans with the Right Lender

    When it comes time to consolidate student loans you may receive numerous letters and even telephone calls from consolidation companies telling you about why their offer is the best. The large amounts of offers you receive may make it a bit overwhelming to try to decide which company should consolidate your student loans. While you may be tempted to consolidate your student loans with the first company you find, don't. Choosing the wrong lender may cost you thousands of dollars. Instead, you should set aside time to compare your student loan consolidation options.

What to Look For When You Consolidate Your Student Loans

Benefits and Incentives: Many companies that consolidate student loans offer incentives that reward you for making payments on time. You can receive interest rate reductions of about 1.0% for making 24, 36 or 48 on-time payments in a row. Also, some companies offer interest rate reductions if you sign up to have your payments automatically withdrawn from your bank account. Those deductions are usually around 0.25%. However, you can loose your interest rate incentives if you are late on even one payment. In fact, less than 10% of those who consolidate student loans actually obtain and keep their interest rate reductions ("FAQs about Consolidation"). The best advice is to look for companies that consolidate student loans offering high deductions that don't require as many on-time payments. For example, a 1.0% reduction for 24 on-time payments is better than a 1.0% reduction for 36 on-time payments.

Length of Term: Different lenders that consolidate student loans offer different term lengths. The term length, which is how long you have to pay back the loan, can vary from 10 to 30 years (US Department of Education). In general, the longer the term length, the lower your monthly payments will be. However, the longer the term, the more money you will end up paying in interest. The best choice is to choose the shortest term length and highest monthly payments you can afford. That will save you money in the long run.

Minimum Balance Requirements: Some companies that consolidate student loans require a minimum balance amount. If the amount of student loans you have doesn't surpass their minimum requirements, the companies won't consolidate your loans. Companies that consolidate student loans often set minimum requirements around $7,500 or $5,000 ("Student Loan Consolidation"). So, make sure you find a company that will accept your loans, and don't waste your time looking at ones that don't.

Quality Account Management Tools: Many companies that consolidate student loans offer great online account management tools. Some allow you to make online payments, set payment schedules and even allow other people to make electronic payments on your account if you set up a username and password. The tools can make paying off your debt much easier and help you stay organized, which reduces stress and eliminates late payments. The quality of a company's account management tools can be an important consideration when comparing companies that consolidate student loans.

Be Wary of Interest Rate Promotions: Because federal statues establish the interest rates for most student consolidation loans, student loan consolidation companies usually don't compete with interest rates ("Loan Consolidation"). If you see a company advertising a lower rate for your loans than those of competitors, know that the low rate may be due to incentives that you must earn. They may not be a guarantee, and should be taken for what they are.

No Fees: You should easily be able to find companies that consolidate student loans that don't charge any up-front fees. In fact, there should never be up-front fees, and if a company tries to charge you fees, it might be an advance fee loan scam ("Student Loan Consolidation).

    To reduce the confusion and complexity involved in comparing offers, it often helps to make a chart detailing each company's offer to consolidate student loans. Write under each one its interest rate, fees, incentives, term length, minimum balance requirement and account management tools. That will make it easier to decide which company you want to consolidate your student loans. Remember to look over all documents and fine print for any agreements before signing. Make sure you know exactly what you will have to pay and what you will get in return before you commit yourself. For information about how to choose the best repayment plan, read Step 6: Find the Best Student Loan Consolidation Repayment Plan

Student Loan Consolidation Guide Sections:


FinAid. "Frequently Asked Questions about Consolidation." (accessed August 9, 2006).

FinAid. "Student Loan Consolidation." (accessed August 9, 2006).

US Department of Education. "Loan Consolidation." (accessed August 9, 2006).