Can I Consolidate Student Loans With Bad Credit

Consolidation of student loans simplifies repayment and could save you money. Learn more about consolidation of student loans, federal loans, private student loans,pros-cons of private student loan consolidation and much more .

Updated by Priya shah on 9th September 2020

The consolidation of student loans simplifies the repayment option and can save money. It is common for a student loan borrower to deal with 10-12 loan lending institutions, which means 10-12 payments and 10-12 due dates every month. Before consolidating your student loan you must think twice and be careful with student loans you are to consolidate. When you consolidate your loans it’s one payment to one lender, once-a-month. Ideally, you cannot consolidate private loans but refinance them to get a new loan with lower interest rates.

Consolidation of student loans is created to make it easier for borrowers to pay off their debt, with affordable new interest rates, terms, and conditions. As both federal and private lenders recognize that lower monthly payments are the best option.

The qualification for debt consolidation is after your graduation. You can only qualify when you leave school or are enrolled in less than half-time. You can’t consolidate private student loans in the federal direct consolidation student loan program.

Table of content

Should I consolidate my student loans?

Whether you have private or federal loans, consolidation of student loans has their benefits and demerits too. If your student loan debt is increasing then the direct consolidation loan program can be the right choice if you require simplifying the process for repaying federal loans and keep your options available for the many repayment plans available for federal loans.

Consolidation will not lower your interest rate but, can increase slightly as a comparison, the interest rate is determined by the weighted average of all the interest rates of the loans that are being consolidated rounded up to the nearest to ⅛ of 1%.

And if you are using private loan servicer for the student loan consolidation, you may increase the chance of getting better interest rates and lower the monthly payments. That’s also maybe because the interest rate of federal loans is very less compared to private student loans:  

  •  with fixed rates of 4.45% for undergraduates.

  • 6% for graduates.

That can create difficulty for private lenders to beat the rate and earn profit out of it. 

Anyhow there is a competitor company that came out with a way to offer students a competitive rate and various repayment options and favorable conditions. Some of them include credit score and other conditions are weighed in. after graduation, if you get a good job that pays well can make your credit score more strong and you may find lender those are interested to give you a break on interest to get your business. 

Worried about your college tuition? Find the best student loan suited for you

Student Loan consolidation and your credit score

A credit score is considered to be an important aspect of any student loan that is to be taken. A strong credit score enhances your credibility of taking the loan and leaves a good impression on the viewer. 

Federal and private student loans are those loans that are considered good debt because it is a kind of investment for a better future. If you have a loan in addition to revolving credit cards is plus credit mix, which is converted up to 10% of your credit score.

Better the best way of improving your credit score is to make your payments on time. Consolidation helps to make your student loan more manageable by combining payments making them lower and make a track record of payment that is to be paid at once without missing and also avoid being the default. Consolidation doesn’t help you hike your credit score but will ensure that your score continues to trend upward.

Consolidation of federal loans

Federal student loans are a great option for a borrower as they come with many benefits that can be recognized once you start repaying your loan. The consolidation of federal loans begins with an application that is to be filled and promissory notes. You need to get your loan records and account statements. Where the form asks you some questions like name, social security number, date of birth, address, etc), what loan you want to consolidate and what you don’t want to consolidate, and the repayment plans that you will be choosing.

After that, you have a section detailing certifications, terms and conditions, and the rights and responsibilities of the one who is borrowing the loan. The signing of the contract binds the contract, without a sign, the application cannot be processed. And there is no fee associated with the process of direct consolidation of student loans. The loan servicer must have all the required knowledge about the student loan debt consolidation.

List of some student loan servicer

  • Cornerstone: 1(800) 663-1662

  • Fed loan servicing:1(800) 699-2908

  • Granite state management and resources: 1(888) 556-0022

  • Great lakes educational loan services: 1(800) 236-4300

  • HESS/Edfinancial: 1(855) 337-6994

  • MOHELA: 1(888) 866-4352

  • Navient: 1(800) 722-1300

  • Nelnet: 1(888) 486-4722

  • OSLA:1(866) 264-976

Consolidation of private student loans

Private student loans cannot be consolidated. Private student loans are more of a refinancing process. Combining the various loans either federal or private student loans will only be more beneficial if the process of consolidation is lowering your interest rates and reducing your monthly payments. Over the last 5 years, the market for consolidating and refinancing of the student loan debt has exploded. Some of the online lenders SoFi and LendKey have tied to innovative service that is a completely online process and makes it fast, to reduce the time and make it more impactable.

Some of the best features of a private student loan dealer with SoFi are:

  • You can consolidate federal and private student loans together

  • As per your qualified student loan, you can borrow the full amount

  •  Loan terms exceed from 5, 7, 10, 15, or 20 years that we can choose as per our comfort.

  • Reduction of 0.25%rate for automatic payments.

  • The fixed interest rate (3.25%-7.25%) APR and variable rates as 2.58%.

In case you have lost your job SoFi will put your payments hold for at least 3-month stretches( up to a total of 12 months) and even help you get the job so the payments can be resumed soon. When you’re looking for a new job interest does accumulate on the loan. But payments are not accepted.

To apply for SoFi the minimum credit score to apply is 660, whereas a typical SoFi customer has above 770 as credit score. Many of the SoFi customers are graduate and many are not, the average income of the borrower must have an income over $100000.

SoFi wants a responsible financial history and a strong monthly cash flow customer. And it is kind of difficult to qualify with a low credit score or income with SoFi. 

The next lender is LendKey which is very much similar to the SoFi and does similar things, it uses a network of community banks and credit unions to fund the consolidation of student loans. The application process is LendKey is also completely online, which takes approx 10 min to record the responses of the customer.

But there are some changes in the LendKey program that need to be noted.

  • The minimum credit score is 680 to apply and borrow the loan

  • The borrower must be employed with a minimum annual income of is $24000

  • Unemployment benefit runs at least 18 months and interest can only be paid for up to four years.

 Looking for private student loans? Choose from our list of Private Student Loans

Pros and cons of student loan consolidation

Confused about whether consolidation is right for you? Here are some points one can consider to make a better decision.

Why you should consolidate student loan

  • Improves the credit score by combining the loan that attracts borrowers and results in monthly payments. 

  • Refinancing student loans can save up to thousands of dollars, especially if you have a big burden of loan more than $100,000.

  • After graduation, you hold an average of seven loans and three loan servicer companies. Consolidation can check to one-lender, once-a-month.

  • As federal loans have a fixed rate of interest and private loans are variable and sometimes can be less than 3%. So the economy doesn’t go into the dump and your variable rates go through the roof.

  • If you are choosing your parents as co-signer that can get you a better interest rate. Now you can try handling the debt yourself.

Why we shouldn’t consolidate student loan

  • Do-overs are not allowed if the consolidation lets your interest rate lower than you are on luck but if not you may end up paying more.

  •  That can also affect your eligibility for the public service loan forgiveness program so you must check before consolidating.

  • The interest rate in private student loan fluctuate and also depends on the lender, so it’s hard to imagine beating the rate. 

Student Loan consolidation vs. student loan refinancing

Consolidation is the combination of the multiple loans into one loan which comes with new terms and interest rates determined using a weighted average of the previous interest rates and loan terms. This helps us to manage our student loans better and also reduces the chances of missing the payments. There are nine student loan servicers but many borrowers that deals with the consolidation of the loan. The consolidation of student loans makes repayment less confusing.

Consolidation of student loans doesn’t lower the interest rate but the weighted average os rounded up to the nearest ⅛ of 1%. It makes all your loan as one and makes it a one-time payment, to simplifier the process of payments.

Refinancing should only be done if the rate of interest is reducing and you have to pay less of the monthly payments. A private lender can go for the refinancing of the loan because they use factors not used by the direct consolidation loan program, to get the interest rate. Your credit score and income mostly decide the interest rate that might be lower than what you are paying. A direct consolidation loan program doesn’t allow private loans to be consolidated.