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Financial Literacy

Private or Alternative Loan Consolidation

If you have borrowed private educational loans to help fund your college expenses, you may want to consider a private consolidation loan.  Private educational loans are sometimes referred to as alternative loans, meaning these loans are non-federal loans made by a lender such as a bank, credit union, state agency or a school. A private consolidation loan is a type of refinancing that you can use to simplify your loan payments by combining all your private loans into one single loan.  A private consolidation loan may lower your monthly payments and make it easier to manage your obligations, but while your payments are lower, you will be paying over a longer period of time. However, the longer you take to pay off the loan, the more interest you will be paying over the life of the loan.  In addition, many lenders require a minimum balance in order to consolidate.

One advantage to consolidation is you may be able to secure a better interest rate.  If most of your loans carry a low interest rate, you may not want to consolidate.  Unlike federal loans, interest rates on private alternative loans are based on credit scores.   If your credit score has improved since you initially obtained the loan because you are now employed, you may want to negotiate with your lender to get a better interest rate.      

Keep these points in mind when you are choosing a lender to consolidate your private loans:

  • Choice of fixed or variable interest rate
  • Length of repayment term
  • Pre-payment penalties
  • Repayment options
  • Fees
  • Co-signer release option

For additional information and a listing of lenders, click here.