For some people, college is an experience they’d rather not relive. Every semester comes with a new set of books, tuition fees, and more student loan debt than even Scrooge McDuck could swim in.
Fortunately, many borrowers have the option to consolidate their loans.
By bundling everything together into one payment instead of several payments, they can make it through college without going broke.
But is there anything else to be gained from this service?
To answer that, we need to take a closer look at what student loan consolidation entails and whether or not it’s actually useful for students and recent graduates. We’ll also talk about the fine print and steps you can take to get your loans consolidated more easily.
What Is Consolidated Student Loans?
To start, it’s important to understand what loan consolidation is and how it works. Put simply, consolidating your federal or private student loans means moving everything into a single monthly payment instead of several smaller payments. Doing this also applies to any other forms of debt you might have – credit cards, car loans, and the like.
Typical student loan consolidation consists of three steps:
#1. Loan refinancing with a private lender
In most cases, you’ll work with a bank or other financial institution to refinance your federal or private student loans at a lower interest rate. The new interest rate will depend on a number of factors, but it will almost always be lower than the average of your original loans.
For example, let’s say you have two separate federal student loans with a combined principal balance of $15,000.
One is a subsidized loan with an interest rate of 3%, and the other is an unsubsidized loan with an interest rate of 6%. If you consolidate them, the new interest rate would probably be somewhere between those figures. In some cases, it might even be better.
You also have a private student loan with a principal balance of $10,000 and a 19% interest rate.
When you combine your federal and private loans into one consolidated payment, the lender will usually give you a new interest rate that’s somewhere between 0% and 5%. In this case, it might be 3.5%, saving you quite a bit of money compared with student loan consolidation what you’d pay out by paying them separately.
#2. Reduces your monthly payment
By consolidating everything into a single monthly payment, you can make one low payment instead of several high payments. Since you’re probably not earning a lot of money right out of college, every little bit counts.
#3. Possible changes to your repayment term
Your actual repayment period can be extended anywhere from five years to 30 years, depending on the lender and the size of your balance.
A longer period means lower monthly payments. But more interest over the life of the loan.
So if you’re trying to pay off your student loans as quickly as possible, stick with a shorter repayment term.
What Is Not-Consolidated Student Loans?
At first glance, this sounds like a pretty sweet deal. You get lower monthly payments and an extended repayment period–what’s not to like?
Unfortunately, these are not consolidated student loans that are available to you.
Loan refinancing
The interest rate on your new loan is only fixed for the first few years–typically five or seven–and then it will begin to accrue again. Even if your lender offers a “low teaser rate” at first, remember that you can be stuck paying the original, much higher interest rate when it resets. I usually see somewhere from 3% ~ 4%.
Lower monthly payments
A longer repayment period means that you’ll end up spending more money over time on your student loan cost of college. In other words, even though you’re paying less each month, you’re actually paying more overall for the life of the loan.
Comparing student loan consolidation with other options
In some cases, you’ll have several different options to choose from when it comes to managing your student loans.
For example, you might be able to agree on a more affordable repayment term with your existing lender or put off payments entirely through deferment.
Whether or not student loan consolidation is right for you depends on your specific circumstances, but it’s always a good idea to compare private and federal student loans with other forms of debt and repayment methods before making a final decision.
It’s also worth noting that if you consolidate your loans with a private lender, some federal benefits might no longer be available to you.
If you’re currently paying high-interest rates on your student loans and you don’t want to be hit with a surprise jump in payments, then looking into refinancing is definitely worth considering.
Make sure that all of your information will be secure and protected before committing to anything, though – otherwise the consequences could be very costly down the line.
If your lender offers flexible repayment options that will help you pay off your student loan faster, then it might be worth consolidating your loans with them instead.
Just remember to ask about any fees or potential penalties before signing on the dotted line.
The bottom line is that the decision to consolidate is yours alone–and it might even change from one year to the next.
Whatever you do, just be sure that you’re making a smart choice for your own long-term financial security.
Is Discover Good for Student Loans?
Discover does not offer private student loans.
However, the Discover Student Loans division offers credit cards and student loan refinancing options to borrowers who might be looking for an alternative way to pay for their education expenses.
Discover Student Loans is one of the few companies that let you refinance both federal and private student loans into a single, lower monthly payment.
You’ll also get access to the same borrower protections and repayment options as before – such as extended repayment terms or income-based repayment plans.
Borrower benefits:
#1. Lower interest rates
As with most student loan consolidation plans, Discover’s refinancing option is a great way to save money when you’re paying off your loans.
Before making any decisions, though, make sure that you fully understand the terms of your contract and what each one means for your overall cost of college in the future.
#2. Discrimination against people with disabilities
There are fewer protections against discrimination for people with disabilities who want to apply for a Discover Student Loans credit card.
However, it’s possible that you might have extra time to pay off your student loans if you’re receiving Social Security or any other government benefits that are designated as disability income.
#3. Same-day processing
You might be able to get personalized loan terms faster if you apply for a Discover card online.
The application process takes about 15 minutes and there’s no need to fax any paperwork, either.
However, you might not be able to get your student loans refinanced as quickly if you decide to go through another lender who handles everything by phone instead.
#4. No impact on other credit
The terms of your Discover Student Loans contract won’t have any impact on other loans that you might have, including traditional credit cards.
However, the company recommends consulting with a professional financial advisor before making any decisions.
If you decide to finance your education through a private loan instead of through federal benefits, then you’ll need to decide which repayment terms are best for you.
What Credit Score Is Needed For Discover Student Loan?
Even though the Discover website doesn’t ask for your credit score, it’s a good idea to check your credit score before applying.
People with strong credit histories typically get the lowest rates and better terms on any type of loan.
If you find that you’re not likely to qualify based on your current credit score, then it might be worth paying off the rest of your federal student loans – or waiting until your credit score has improved before refinancing your education.
There’s no need to worry about your credit score when applying for one of Discover’s student loan refinancing options.
The company doesn’t pull your credit history before giving you personalized rates, so it won’t be able to tell whether or not you’re likely to qualify until you’ve already applied and received at least three offers.
A good credit score, which is typically defined as having a FICO score of 670 or higher, can help you qualify for rock-bottom rates on most types of loans – including student loan refinancing options.
How to Apply for Discover Student Loans (2019)
Your first step is to apply online at the Discover website.
Before filling out an application, make sure that you have all the necessary personal data on hand–including your photo ID and Social Security number.
The application should take about 15 minutes to complete.
If you’re approved, then there’s no need to fax any documentation unless you decide to accept the terms (in which case, an underwriter will contact you within five business days to request additional documents).
Is Discover Student Loans Legit?
Perhaps the biggest selling point about the Discover Student Loans is that it doesn’t require a co-signer. This means that you can consolidate federal and private student loans from any other lender into one manageable loan as long as you meet certain eligibility requirements.
However, it’s also worth noting that the company doesn’t approve of everyone. You might not qualify for student loan refinancing if you’ve had more than five credit inquiries in the past year, have an annual income of less than $75,000, or are currently enrolled in college.
Discover Student Loan Refinancing (2019)
The Discover website lists all of the terms for its student loan refinancing options, broken down by repayment term percentage and corresponding interest rates.
For example, you can get a five-year term with a rate of 5.49% or a 10-year term with rates starting at 6.19%.
However, rates are subject to change based on the market – although Discover will notify you within 30 days if there’s an increase in your APR. The company uses its own proprietary formula to calculate interest rates, which take into account several factors such as your credit history and financial profile.
Student Loan Consolidation (2019)
If you’re considering consolidating your federal student loans, then it’s important to be aware of the pros and cons associated with doing so.
One of the main advantages of consolidating federal student loans is that you can get one monthly bill for all of your federal loans.
However, there are some negatives associated with this type of loan consolidation as well, such as losing out on any borrower benefits or repayment options that you currently have through your original lender.
One advantage of consolidating private student loans is that it can be easier to qualify for a lower interest rate and better terms (especially if you have a strong credit score or have been paying your loan on time every month).
Another advantage is that you can combine multiple loans into a single monthly payment.
However, most private student lenders require a co-signer if you don’t have good credit. And sometimes consolidating two or more private student loans means that you might lose access to repayment options or forgiveness programs that you originally had.
Discover Student Loan Refinancing vs. Private Consolidation
If you choose to apply for a Discover Student Loan, it’s important to be aware of the differences compared to applying for private student loan consolidation.
One example is that Discover doesn’t allow co-signers on its loans, which means you can’t get a business partner or family member to help you qualify for a better interest rate.
In addition, Discover doesn’t offer any repayment options that other lenders don’t also offer.
For example, companies such as Sofi and CommonBond both allow borrowers to make interest-only payments while they’re in college.
And CommonBond’s loans are almost always eligible for student loan forgiveness.
Discover Student Loan Refinancing FAQs
Is it better to consolidate federal or private student loans?
This is a difficult question to answer because there are so many factors involved. However, consolidating federal student loans does come with some downsides – such as losing access to repayment options and borrower benefits.
If you decide to consolidate your federal loans, it’s important to be aware of the pros and cons associated with this type of loan consolidation.
What is the Discover Student Loans interest rate?
The interest rates depend on various factors, such as your credit history and financial profile. One advantage of consolidating private student loans is that it can be easier to qualify for a lower interest rate and better terms.
What private student loan consolidation companies do Discover partner with?
Discover doesn’t disclose which lenders it works with, but some of the popular options include Sofi and CommonBond.
Conclusion
In conclusion, if you’re looking for a company that offers student loan consolidation, then it’s important to consider all of your options before making a final decision.
One example is that Discover doesn’t allow co-signers on its loans, which means you can’t get a business partner or family member to help you qualify for a better interest rate.
In addition, Discover doesn’t offer any repayment options that other lenders don’t also offer.
For example, companies such as Sofi and CommonBond both allow borrowers to make interest-only payments while they’re in college. And CommonBond’s loans are almost always eligible for student loan forgiveness.
The bottom line: it’s always a good idea to compare different loan consolidation companies and their products before you decide on one. And even though there are some downsides associated with applying for federal student loan consolidation, it can be worth applying for this type of loan if you qualify.
