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Updated on Friday, December 7, 2018
Sallie Mae has a long history in the student loan world. Since the 1970s, this student loan giant has provided or serviced loans for college and graduate school students, as well as their parents.
Although Sallie Mae used to be government-sponsored, it’s now a private company that lends private student loans to cover education costs. And while it once offered consolidation options, you can no longer consolidate student loans through Sallie Mae.
So if you were looking for Sallie Mae loan consolidation, the bad news is that it no longer exists. But the good news is you have two other options for combining multiple loans into one.
2 alternatives to Sallie Mae student loan consolidation
While Sallie Mae loan consolidation is a thing of the past, you still have two options for consolidating debt: borrowing a direct consolidation loan from the federal government, or refinancing with a private lender. Here’s what you need to know about each.
1. Consolidate your federal student loans with a direct consolidation loan
If you’ve got federal student loans, then you can apply at StudentLoans.gov to combine them into a single direct consolidation loan.
The main benefits to federal student loan consolidation include:
- Combining multiple loans into one: A consolidation loan can replace several loans with one new one, thereby simplifying repayment.
- Choosing new repayment terms: You could stick with the standard 10-year term or put your loans on another plan, such as income-driven repayment or extended repayment.
- Adjusting your monthly bills: If you’re struggling to pay bills each month, putting your consolidation loan on an income-driven or other plan could lower them. Plus, income-driven plans can end in loan forgiveness after 20 or 25 years of repayment.
- Making certain loans eligible for income-driven repayment: Parent PLUS Loans, for example, don’t qualify for income-driven repayment unless you consolidate them first. After you do, you could put them on the income-contingent repayment plan.
- Getting your loans out of default: Along with loan rehabilitation, consolidation is one way to get your loans out of default and back into good standing.
- Switching to a new loan servicer: If you’ve had a bad experience with your loan servicer, you could change to a new one. Some federal loan servicers include Nelnet, Navient, and Great Lakes.
Although consolidating helps you simplify repayment and lets you choose a new repayment plan, it won’t save you money on interest. In fact, if you choose a longer term than what you have now, you’ll likely pay more interest over the life of your loan.
It’s important to note that consolidation doesn’t lower your interest rate, but rather takes the weighted average of your previous rates and rounds up to the nearest one-eighth of a percent. So, if you’re looking to save on interest, student loan refinancing could be a better option.
2. Combine federal and/or private loans through student loan refinancing
Your second option for combining several pieces of debt into one is via student loan refinancing. Unlike federal consolidation, you refinance with a private lender, such as a bank or credit union.
You can combine both federal and private student loans through refinancing. Note, however, that if you refinance federal loans, you lose access to federal programs, such as income-driven repayment and federal loan forgiveness.
Refinancing has its own benefits, however, with one of the biggest being the potential to save money by lowering your interest rate. Here are some major reasons to refinance:
- Qualifying for a lower interest rate: If you meet a lender’s requirements for credit and income — or can apply with a cosigner who does — you could qualify for a lower rate on your refinanced student loans.
- Choosing between a fixed and variable rate: Most lenders let you choose between a fixed rate, which never changes, and a variable rate, which is sometimes lower to begin with but can fluctuate over the life of the loan.
- Saving money on your student loans: With a lower interest rate, you could save hundreds or even thousands of dollars.
- Choosing new repayment terms: Private lenders often offer repayment terms between five and 20 years.
- Adjusting your monthly payments: If you can afford higher payments, you could choose a shorter term than you have now and get out of debt more quickly. But if you’re feeling strangled by student loan bills, you might choose a longer term to reduce your monthly payments and create more breathing room in your budget.
If you’re interested in refinancing student loans, it’s easy to get a rate quote from a few lenders. By checking prequalification offers, you can see if you could snag a lower interest rate on your student debt.
Combining your loans can help simplify repayment
The average student loan borrower holds 3.7 loans, according to a 2017 report by Experian. With so many loans and loan servicers, you could have trouble keeping track of your monthly bills.
But if you consolidate your loans, you’ll only have to make one payment per month to a single loan servicer — plus, you might get the added benefit of selecting different repayment terms or even lowering your interest rate.
Even though you can’t consolidate student loans with Sallie Mae anymore, you still have the option of consolidating with the federal government or refinancing with another private lender. Before making any changes to your debt, though, make sure you understand the differences between federal consolidation and private refinancing.
Once you’ve thought through the pros and cons of each, you can choose an approach that will bring you one step closer to a debt-free life.