Friday, January 2, 2009

Private Student Loan Consolidation

Private Student Loan Consolidation

Private student loans cannot, in general, be consolidated with federal student loans. The low interest rates on federal consolidation loans are not available to private education loans. Nevertheless, there are several options for refinancing private education loans.

Since most private education loans do not compete on price, a private consolidation loans is merely replacing one or more private education loans with another. So the main benefit of such a consolidation is obtaining a single monthly payment. Also, since the consolidation resets the term of the loan, this may reduce the monthly payment (at a cost, of course, of increasing the total interest paid over the lifetime of the loan).

However, since the interest rates on private student loans are based on your credit score, you may be able to get a lower interest rate through a private consolidation loan if your credit score has improved significantly since you first obtained the loan. For example, if you've graduated and now have a good job and have been building a good credit history, your credit score may have improved. If your credit score has increased by 50-100 points or more, you may be able to get a lower interest rate by consolidating your debt with another lender. You can also try talking to the current holder of your loans, to see if they'll reduce the interest rate on your loans rather than lose your loans to another lender.

Home Equity Loans

Private education loans tend to have interest rates that are in the same ballpark as home equity loans. If your private education loan has a variable interest rate, you might consider using a fixed rate home equity loan to pay off the private education loan, effectively locking in the interest rate.

Education Lenders

The following education lenders will consolidate private education loans. These are private consolidation programs, so the interest rates are dictated by the lender, not the government. There may be additional fees charged for originating these loans.

You should not consolidate your federal student loans together with your private education loans. They should be consolidated separately, as the federal consolidation loans offer superior benefits and lower interest rates for consolidating federal student loans.

When evaluating a private consolidation loan, ask whether the interest rate is fixed or variable, whether there are any fees, and whether there are prepayment penalties.

The lenders are listed in alphabetical order. No significance should be inferred from the order in which the lenders are listed.

Lender Description
Chase Private Consolidation Loan [Note: This information is based on Chase's web site, which lists "current as of" dates ranging from 6/2/08 to 11/21/08, so this information might not be up-to-date.] $7,500 minimum. $150,000 cumulative borrowing limit. No fees. 30 year repayment term. Interest rates of one-month LIBOR + 5.25% to one-month LIBOR + 10.25%. 0.50% interest rate reduction with a creditworthy consigner. Cosigner release option after 36 months of on-time payments, provided that credit criteria are satisfied.
NextStudent Private Consolidation Loan $7,500 minimum. $300,000 maximum. Up to 30-year term. No prepayment penalties. Variable rate loan. Interest rates of 3-month LIBOR + 1.00% to 3-month LIBOR + 1.75% during the first year and 3-month LIBOR + 5.00% to 3-month LIBOR + 5.75% after the first year. Interest rates vary quarterly. Origination fees of 0% to 5%. No prepayment penalties.
Student Loan Network Private Loan Consolidation $10,000 minimum. $300,000 maximum. 20-year term for loans less than $40,000. Up to 30-year loan term for higher amounts. Variable rate loan. Interest rates of 3-month LIBOR + 5.00% to 3-month LIBOR + 8.5%. Origination fees of 1% to 5%. No prepayment penalties. Cosigner release after 48 on-time payments, contingent upon primary borrower credit.
Wells Fargo Private Consolidation Loan $5,000 minimum. $40,000 to $100,000 maximum, depending on credit. Aggregate loan limit of $100,000 (including other education debt). Up to 15-year term. Variable rate loan. Interest ranges from Prime + 0.0% to Prime + 6.75%. No origination fees. Up to 0.50% interest rate reduction for auto-debit. 0.5% interest rate reduction after making 48 initial on-time monthly payments.

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