Student loan debt represents a significant monthly payment obligation for nearly 40 million adults in the United States alone, totaling slightly more than $1.3 trillion among them. Having an outstanding student loan balance makes it feel as though other financial priorities are out of the question, such as buying a home, paying down consumer debt, or saving for retirement. For borrowers with federal student loan debt, however, the process of consolidating multiple student loans can offer some reprieve.
Consolidation is essentially the process of taking out a single, often substantial student loan through the Department of Education. That large loan is then used to pay off the total balance of multiple student loans, leaving borrowers with a single monthly payment and a potentially lower obligation each month. Borrowers are given the opportunity to extend repayment well beyond the standard 10-year plan. Consolidation allows for payment to be spread over the course of 20 or more years, depending on the total amount owed and, in part, the preference of the borrower.
A Case for DIY Consolidation
There are several services available to student loan borrowers through a variety of organizations, not the least of which includes working with an adjustor to take the process of consolidation off the shoulders of an individual borrower. In exchange for an upfront, one-time fee, adjustors complete the consolidation process, including any paperwork or follow-up items required by the student loan servicer to complete the consolidation. While not an illegal service, in recent months, student loan adjustors – individuals and companies who hold themselves out to be professionals in student loan consolidation – have come under widespread scrutiny because they provide a service that is free of charge through the Federal Student Aid Office.
The process of consolidation is fairly straightforward. A borrower simply visits this site and logs in with his or her federal student aid ID. The link to apply for consolidation is shown clearly on the first page after successfully logging in, and borrowers have the ability to select which federal loans they want to combine into a new consolidation loan. A new loan servicer can be chosen as well, and any repayment plan, including income-based options for which borrowers are eligible, can be selected at the time of application. Once the required information is input into the application, borrowers sign and send it in. It’s that simple.
A settlement against a handful of student loan adjustors revealed that some companies were charging between four and 27 times more than the legal limit for consolidation-related services. In some cases, borrowers were charged an ongoing monthly fee for the service while others failed to receive the required legal disclosures set out by consumer protection laws. In the state of Washington, six companies offering student loan adjustor services were required to refund all fees paid to the 346 victims – a total bill of $162,000.
Consolidation is not a confusing process, so long as borrowers are willing to take the few minutes needed to complete it. With the simplicity built into the application and online platform, paying an adjustor to combine student loans into a single debt is hardly worth the time or the money.
If possible, a student loan borrower could think about the alternative from the private market – student loan refinancing. This refers to a similar process where you consolidate student loans into a single monthly payment, but you also receive a new interest rate based on a credit application. Like federal consolidation, you don’t need an adjuster to refinance your student loans. The best lenders in the industry will offer up a quote before they pull your credit, and the application can be done by yourself online.
Author: Jeff Gitlen
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