Student Loan Consolidation Services Review
How to Choose the Best Loan Consolidation Service
The top performers in our Student Loan Consolidation reviews are CommonBond, the Gold Award winner, SoFi, winner of the Silver Award; and Darien Rowayton Bank, the Bronze Award winner. Read on for what you need to know when refinancing or consolidating your federal or private student loans and how to choose the best institution for you.
In the United States, nearly 70 percent of college graduates leave university with student loan debt. Of those with loans, the average debt amount is close to $30,000. Student loan debt can comprise multiple loans from multiple lenders, and include federal or private loans, or both. You could end up managing payments to multiple banks and dealing with different interest rates, which not only complicates your budget, but can cost you a lot of money in the long run.
If you find yourself in debt after completing your education and you're not sure what to do, you have two options for simplifying the repayment process that can help you lower your interest rate or payments and combine several loans into a single loan.
Consolidating Federal Student Loans
First, if you have federal student loans, you can consolidate them through a Direct Consolidation Loan with the U.S. Department of Education. We have three companies in our lineup that can help you with this process. Consolidating federal loans may allow you to keep the government benefits. This option does not apply to private loans.
Consolidating Private and Federal Student Loans Through Refinancing
The second option is to combine all the loans by refinancing them as a single private loan. Most of the lenders in our lineup do this. This option lets you consolidate several or all of your loans into a single loan, usually with better interest and terms. Most of the lenders in our lineup let you include federal as well as private student loans.
Overall, we found CommonBond, SoFi and Darien Rowayton Bank to be the best financial institutions. These companies let you refinance your loans and offer favorable interest rates and terms. CommonBond and SoFi offer new graduates other advantages for as well.
Still in school? Many consolidation programs are only for graduates. Some even require that you have been working and paying off your loans for a given number of years before applying. A few will let you apply if you are close to graduating. Check our Best Student Loans site for more information about lenders who help current students. For more information, take a look at our articles on student loan debt options. Another place to look for information on consolidating your student loans, including how to evaluate your best options, is Student Loan Consolidator. If also offers links to private lenders, several of which are reviewed on our site.
Student Debt Consolidation: Let's Get Our Terms Straight
In order to understand the potential advantages of student loan consolidation and determine the best service for you, it's important to understand the differences between the different types of loans:
Federal Student Loans: These loans are granted by the U.S. Department of Education and come with unique benefits such as loan forgiveness for specific career fields or income-based payment. You would not have been required to start paying them off before graduation.
Private Student Loans: These are the loans you took directly from a bank. You would have started payments on them immediately. Rates, fees and terms vary widely by lender, and you don't have the same perks as with federal student loans.
Consolidation: This is the act of combining two or more loans into a single loan. You can do this two ways: With federal loans only, you can apply for a Direct Consolidation Loan from the U.S. Department of Education. For private loans – or a combination of private and federal loans – you can only consolidate through refinancing.
Refinancing: Refinancing simply means getting a new loan to pay off your old one and then making payments on the new loan. You can refinance one loan or several loans at once, as in the case of student loan consolidation with a private lender. In most cases, the lender will pay off your student loans directly and then you start making payments on your new consolidated student loan.
How the Federal Student Loan Consolidation Process Works
Here, we are talking about pure consolidation with the federal government, not refinancing your student loans through a private institution. For these services, you can work directly through the Federal Student Aid (FSA) office of the Department of Education as well as US Student Loan Consolidation or USA Student Loans.
Both US Student Loan Consolidation and USA Student Loans do not provide financing themselves but charge a fee for doing the paperwork needed to file with the government. They offer their experience and knowledge of government programs, and in some cases, they can determine if you are eligible for forgiveness or other programs that might lower your loan balance. You can get this same information from the FSA, but it takes research. Thus, these organizations are good choices if you are busy, have checked out the FSA website and are confused about the process, or are in financial crisis and are looking for someone to help you.
To be eligible, you must have one or more federal student loans that are not in default. There is no minimum loan amount to apply for consolidation, though in some cases, you may find it easier to pay one loan off. When applying with the FSA, you go to their website, enter your FSA membership number and apply for a Direct Consolidation Loan. The website will lead you through the process, and you can call an FSA counselor if you have questions.
If, however, you decide to bypass the FSA and use one of the services on our lineup, the representative will collect information about you, your loans and your income, and they may do a soft pull of your credit report. They use this information to determine what kind of repayment plan you qualify for. They then prepare and file the paperwork for you, contacting you for the needed paperwork. This can include copies of your current student loans, W-2s or other proofs of income, plus any information that could show whether you are qualified for a special repayment program or not.
When using a private service, you will pay its fee, either once or in a series of two or three payments. You then make one monthly payment to the government-appointed loan holder, not to the service that did the paperwork.
What About Private Student Loan Consolidation?
Private student loan consolidations are not part of any government program but are issued by a bank, such as Darien Rowayton Bank (DRB). For example, a DRB student loan refinance will work like any other consolidation loan: You take out a single loan to pay off all the other student loans, and then pay only the consolidation loan. This can help you by reducing the number of loans listed on your credit report as well as possibly reducing the interest you are paying.
There are also credit unions that provide student loans. Alliant Credit Union offers student loan refinancing and is on our top 10 list. CU student loans, now called LendKey, is a partnership of many credit unions and community banks that offer student loan refinancing and consolidation.
How the Process Works
Just like refinancing any private loan, when merging all of your student loans into one loan, you will work with a loan officer, providing your financial information, including income, tax returns and credit history. If you're not yet employed, some lenders, such as with CommonBond, will accept an official notice of intent to employ as proof of income. As with any loan, the bank does a credit pull, and in most cases, the interest you'll pay is determined by your credit score, the loan amount and the length of the loan.
If you are turned down or are not pleased with the interest rate you qualify for, finding a co-signer may allow you to get the loan and, often, at a better rate.
With refinancing, the lender pays off your federal and private student loans. In the case of federal loans, any benefits you may have received end. You then make your single payment to your new lender.
Should You Consolidate or Refinance Your Federal Student Loans?
You can consolidate your federal student loans directly through the Federal Student Aid office or with the assistance of USA Student Loans or US Student Loan Consolidation. These institutions work directly with the government so you retain the benefits of the original loans.
If, however, you choose to refinance your student loans with a private bank, credit union or institution, they will pay off the loans for you, but you lose any associated benefits, like income-based payments, that can save you big money in the long run. Another example is if you work in a qualified non-profit, government or public service job, you may be eligible to have your loan forgiven after so many years. If you refinance, you lose that opportunity.
Before combining federal and/or private student loans via refinancing, check the benefits associated with each loan to make sure you are not hurting yourself in the long run.
Student Loan Consolidation Companies: What You Should Look For
Not all student loan consolidation lenders are alike. In fact, there is a lot of diversity in the services offered by these lenders because of the differences between federal and private student loans and because so many people seeking out these loans are recent graduates. Therefore as you choose the best student loan consolidation lender for you, consider the following:
Services: Student loan consolidation companies generally fall into two camps: Those that assist you with securing a Direct Consolidation Loan from the Department of Education, or those that can refinance your loans. Of those that refinance, most will refinance your federal loans.
Loan Terms & Fees: Most banks or institutions that refinance student loans do not charge fees. The one exception, however, is Alliant, which charges fees related to the paperwork of releasing the old loans. USA Student Loans, US Student Loan Consolidation and the The Student Loan Help Center charge heavy fees. They are not lenders, but rather, they file paperwork with the government for consolidating your federal loan or negotiate on your behalf for loan reduction. In these cases, you are paying for their work in handling the paperwork and negotiations that you might otherwise be able to do yourself. Before hiring one of these services, make sure the convenience factor is worth the fee you will pay.
Interest rates vary. The base rate always depends on the prime rate, and then your specific rate depends on your credit history, the loan amount and the length of the loan. In the case of federal student loan consolidation, the U.S. Department of Education sets the new interest rate by taking an average of the rates of the federal loans you're consolidating.
Loan terms define the length of your loan. Some lenders will grant you a loan for as little as one year while others let you stretch payments to 30 years. You need to decide what works best for your budget, but keep in mind that the longer the loan term, the more you are paying in the long run, which can mean the difference between thousands of dollars to tens of thousands of dollars.
Eligibility: As we said earlier, the average student loan debt is around $30,000, which any of the lenders in our lineup can handle. However, some advanced degrees, such as medical degrees, can lead to debts of several hundred thousand dollars, which narrows your choices. Of greater concern, though, may be the minimum lenders are willing to consolidate. In our research, we found several lenders would not consider you unless your debt is greater than $10,000 for instance. CommonBond has the lowest minimum, at $3,500, for refinancing private loans.
Another issue to be aware of is that some banks and credit unions set a minimum annual income. Darien Rowayton Bank, for example, has a minimum annual income of $50,000, which was the highest of any of the private lenders on our lineup. It services higher loans in general, like medical or law school loans. A few, like SoFi, simply want proof of intent to employ. Finally, others set no lower income limit because they examine your entire credit history.
It's possible you may not qualify for a new loan or that the interest rate and terms are worse than if you continued to pay for each loan separately. In those cases, you may want to get a co-signer. The lender can then use the co-signer's credit history to qualify you or get you the better rate, but it also makes the co-signer responsible for the loan. Outstanding loans also count against their credit rating, which can be a problem dealing with looking at a 30-year, $150,000 loan.
One item that can reassure a co-signer is a release, which allows him or her to be removed from the loan after a certain number of consecutive, on-time payments. In our lineup, it varied between 24 and 36 on-time, consecutive payments. Where a lender may not offer a co-signer release option, most let you refinance the loan for free, but you may not qualify for the same interest rate.
Help & Support: If you're a new graduate, you may not be familiar with the steps involved in securing a loan. Therefore, it's important to find an institution that will work patiently with you throughout the process, that will take the time to explain things and that won't pressure you into decisions. The agents should understand the process as well. On our matrix, the customer service score we awarded each lender reflects the overall friendliness and knowledge of the agents we spoke to. We also considered online resources as well, which further speaks to their knowledge and focus on helping graduates in addition to how well they empower consumers to make informed decisions
What We Evaluated: What We Found
While we couldn't take out an actual loan with each institution, we based our evaluation on the inquiry process. We spoke to each company several times with different scenarios, looking especially for how knowledgeable the agent was and whether we could get our questions answered without having to give out private information or being subjected to a credit pull or online identity search.
Nearly all of the agents were forthcoming, asking only enough financial information to get a general idea of our needs. Their questions usually centered on how many loans we had, the total amount, and whether they were federal or private. A few asked about our income.
The real discrepancy, however, lies in the lender's knowledge about student loan programs in general and, as was the case with some services, sometimes their own policies. Several of the companies, like Wells Fargo, do not specialize in student loans but offer them as part of their repertoire. A few have a third-party service they work with. In these cases, we found that the lender agents didn't always know much about the student loan programs while the outside service understood student loans but was not familiar with the specific lender's policies. A few depended on the information on their computer, looking up details on charts. While we found it reassuring that the information was readily accessible, it also indicated that student loan consolidation isn't the lender's primary focus.
Top Ten Reviews seeks, whenever possible, to evaluate all products and services in hands-on tests that simulate as closely as possible the experiences of a typical consumer. The companies in our lineup had no input or influence over our test methodology, nor was the methodology provided to any of them in more detail than is available through reading our reviews. Results of our evaluations were not provided to lenders in advance of publication.
Our Verdict & Recommendations
Overall, we found CommonBond, SoFi and Darien Rowayton Bank to be the best lenders for student loan consolidation. They handle consolidation through refinancing but will work with private and federal student loans. CommonBond and SoFi stood out for their focus on helping new graduates, with SoFi's networking and career assistance distinguishing it from other lenders. Darien Rowayton Bank offers excellent service and good rates and can handle smaller loans, but it mainly focuses on larger student loan debt.
All three of these institutions only offer refinance, however. If you are looking to consolidate your federal student loans and keep your federal benefits, the Federal Student Aid office is your top choice. You work directly with the government to combine your loans into one payment, and we found the customer support surprisingly easy to contact and talk to. If, however, navigating the paperwork and regulations is something you'd rather avoid, US Student Loan Consolidation and USA Student loans can help.