Home > Students > How to Consolidate Private Student Loan Debt

Comments 0 Comments

Judging from the comments we’ve been getting from Credit.com readers lately, borrowers with private student loan debt want to consolidate their loans, but don’t know how. 

“I have private student loans, are you able to help me find a way to consolidate to get a lower interest rate?” asks Janice.

“I see all these programs for federal loans, but what if you have private student loans with two different banks? Is it possible to consolidate and if it is, any organization you would suggest?” writes Liz. 

Yes, there are options for private student loan consolidation but it’s a much different animal than federal student loan consolidation, and it’s crucial to understand how it works before going into it. 

Borrowers hoping to get one of these loans are often looking for one of several possible benefits. They may want to: 

  • Get a lower interest rate
  • Shrink their monthly payment
  • Roll multiple debts into one loan
  • Remove a co-signer

All of these options may be possible — if you qualify. 

“The market has really changed in the past two to three years. There are more options for consumers,” says Stephen Dash, CEO of Credible, an online marketplace for student loan refinancing. There are more lenders offering these loans than before, and each year the number grows. But it’s still a drop in the bucket compared with the number of lenders offering credit cards and mortgages, for example. “When we started (in 2012) there was only one lender offering federal and private loan refinancing,” Dash says. “There are now more than 10.” 

(Tip: First, of course, you have to know what type of loan you have. Not sure? Check the National Student Loan Data System database which lists virtually all federal loans. Or, better yet, ask your lender or servicer whether your loan is private or federal.) 

“The first step is internal housekeeping,” says Jenny Chou, chief strategy officer at student loan lender DRB Student Loan.  “Do I fit their credit profile?” Chou said, for her company, that profile is a borrower who is a working professional with a strong income, good earnings potential in the future and a stable credit history. Dash echoed a similar profile for Credible as well.

If you have fallen behind on your private student loans, consolidation isn’t going to be an option. Nor will it help if you are unemployed or barely squeaking by on a low income. If that’s the situation you find yourself in, you may want to instead talk with a nonprofit credit counseling agency that also offers student loan counseling. There are a handful of agencies that currently provide this service, and they will try to help you figure out a plan for tackling your debt. 

Bad Credit? That’s a Problem 

Unlike federal student loan consolidation, which doesn’t require a good credit history, a credit check will most certainly be part of the application process here. That means you’ll want to review your credit before going into this process. (You can get a free credit report summary from Credit.com to get an idea of how strong your credit is — or isn’t.) “The important thing is that private lenders will risk-score everyone who applies for one of these loans,” says Chou. 

If you have poor credit, you probably won’t be eligible for private student loan consolidation, unless you get a co-signer. And that’s risky — for the co-signer. Even if you pay the loan on time, that debt can affect the co-signer’s debt-to-income ratio and credit scores, making it harder for them to qualify for a mortgage, credit card or car loan. And if you don’t make your payment on time, their credit will suffer as much as yours. So make sure you are confident in your ability to repay the loan before you consider asking for their help.  

Ask Questions 

When you identify a lender willing to extend you a loan, don’t automatically assume it is a good deal. As with any type of loan, you’ll want to ask these important questions before you accept the offer: 

Is the interest rate fixed or variable? A variable rate means the rate can change periodically. Be sure you understand how often it can change and whether there is a cap that limits how high it can go. 

What will be the total cost of repayment under the new loan? If you are stretching out the loan with lower payments, that may be good for your cash flow, but you could pay more in the long run due to interest. How much more? 

Can a co-signer be released? Some lenders will allow a release of a co-signer under specific circumstances, for example if you improve your credit score, show proof of income, and have an on-time payment history. 

What happens if I can’t pay? What happens to the loan balance if you die, become disabled or lose your job? If there is no loan forgiveness, you may want to consider getting disability and/or life insurance to protect yourself and/or a co-signer.

More on Student Loans:

Image: istock

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Certain credit cards and other financial products mentioned in this and other articles on Credit.com News & Advice may also be offered through Credit.com product pages, and Credit.com will be compensated if our users apply for and ultimately sign up for any of these cards or products. However, this relationship does not result in any preferential editorial treatment.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Our Owners

Credit.com is owned by Progrexion Holdings Inc. which is the owner and administrator of a number of business related to credit and credit repair, including CreditRepair.com, and eFolks. In addition, Progrexion also provides services to Lexington Law Firm as a third party provider. Despite being owned by Progrexion, it is not the role of the Credit.com editorial team to advocate the use of the company’s other services. In articles, reporters may mention credit repair as an option, for example, but we’ll also be sure to note the various alternatives to that service. Furthermore, you may see ads for credit repair services on Credit.com, but the editorial team isn’t responsible for the creation or implementation of those ads, anymore than reporters for the New York Times or Washington Post are responsible for the ads on their sites.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team