Consolidate Private Student Loans

Unfortunately about one-quarter of all the student loans being taken out these days are private student loans. I say unfortunately because these types of loans are always less favorable to the borrower than government backed or otherwise called federal loans. They offer less protection to the borrower, and they will certainly have higher interest rates.

However, if you have several private student loans and you are getting

ready to start paying them off, you will probably be looking to consolidate your private student loans. Basically you need to contact your lender and ask if this is possible. You may or may not get a positive answer. Private student lenders are under no obligation to execute a consolidation loan as are lenders of federally backed loans. They can simply refuse and there are many examples of requests to consolidate private student loans being turned down because credit markets are tight. So you might end up stuck with making several monthly payments on each of your private loans separately. Even if you do manage to get your consolidated loan request granted, be watchful of the interest rate on the new loan. This could be higher than the interest rates on your previous loans, and you may find it unacceptable. The lender can set the interest rate at any level. Again, this is a difference between federal and private loans because the interest rate for a consolidated federal loan is set by law to be the weighted average of the rates on the individual loans being consolidated.

I recently read a blog post by a young lady who was lamenting her student loan situation. She recently started work in television journalism and had an excellent job, although starting salaries in that field are not particularly high. She decided to attend a prestigious private college somewhere in New York, and by the time she graduated she had taken out 4 student loans and owed a total of $115,000. Three of those four loans were private and only one was federal. So she broke the first rule of thumb when it comes to incurring student debt: don’t borrow more than your starting salary is expected to be. Her salary was no where close to the amount she borrowed and it will be many years before it rises to that level, if ever. Her monthly payments were $1200 for her student loans. Her plan was to consolidate her private student loans in order to have lower monthly payments. Her request was turned down by her lender who said that money was not available because of tight credit markets. So she was stuck. Incidentally she also broke the second important rule of thumb when it comes to student borrowing: don’t borrow so much that your monthly payments are more than 10% of your gross salary. Again, she wasn’t even close.

So don’t let the same thing happen to you. If you must borrow money to finance your college education try to stay away from private loans. More and more people are defaulting on those loans as they have become more popular. You must educate yourself on the consequences of default on student loans, but the bottom line is that you should avoid default at all costs. Millions of Americans have defaulted on their student loans and many are simply overwhelmed by the debt and the harassment of collection agencies. Many times these agencies are owned by the student loan lending company. And be aware that you cannot get student loans, either federal or private, dismissed even if you declare bankruptcy. These are a few of the considerations necessary before you take out private student loans and attempt to consolidate them.