04/01/2015 07:50 am ET Updated May 31, 2015

This Overlooked Student Loan Option Could Save You Thousands

Graduates today are not only burdened by the high price of an education, but with the cumbersome repayment process that goes along with it. It is common for borrowers to have multiple student loan servicers upon graduation and to have to deal with repaying their loans through several secure logins. Some graduates opt to take part in auto-debit in order to try and simplify this repayment process and others disregard their payments entirely.

Student loan consolidation is often neglected as a repayment strategy because it can be hard to understand how to approach the process. In particular, many borrowers do not know whether to choose between a federal or private student loan consolidation. With that in mind, here is a breakdown of the similarities and differences between federal and private student loan consolidation to help you take control of your student loans.

Federal loan consolidation:

  • The process takes a weighted average of your current interest rates and combine all your loans into one convenient payment
  • Is free through the federal government
  • Private loans can not be consolidated
  • A Plus loan made to the parent of a dependent student cannot be passed on to the student during the consolidation
  • Repayment term can be readjusted between 10-30 years
  • Borrower can pick the servicer that will service the new loan

Remember that by consolidating and potentially switching servicers you may loose benefits associated with your previous lenders. Be sure to take a closer look at which options you take advantage of and wish to maintain.

Private loan consolidation:

  • Refinancing and private loan consolidation are effectively one in the same
  • Interest rate is assessed based on your financial and credit history, not your current loan rates
  • Private lenders can refinance and combine both federal and private loans into one payment
  • Depending on your current rates, financial situation, and when you go through the process, you could experience a significant reduction in your interest rate.
  • Federal repayment programs such as income-based repayment (IBR), public service loan forgiveness will no longer apply, but some private lenders may offer deferment and forbearance options

So which consolidation process should I explore?

If you currently take advantage of federal repayment options and wish to hold on to these benefits, only a federal consolidation will keep these options available to you. This is also true if you take part in a public service loan forgiveness program funded by the federal government.

On the other hand, only private consolidation will allow you to combine federal and private student loans into one payment. So if you have a mixture of loans, this may be your best option if your goal is to simplify your repayment to just one servicer.

As an insider tip, private consolidation interest rates are affected my market conditions. Right now, market rates are at an all time low, as low as 1.92%, so it is a great time to explore the private consolidation process if you want to lower your interest rate. My company Credible has created a platform to help you explore your private consolidation options and see if refinancing is the right option for you.

Trying to simplify your loan payments does not have to be complicated. Check out Credible and see how much you could save with private consolidation or to learn more about federal consolidation.