Consolidate any federal loans through the U.S. Department of Education. If you received your loans through any federal direct or federally insured loan program, you can consolidate with the U.S. Department of Education at no penalty to you, according to LoanConsolidation.ed.gov. You can apply for consolidation by mailing or e-filing the form (see Resources). Even parents who took loans for their children's college education through the PLUS loan program can consolidate debts, according to ParentPlusLoan.com. The interest rate for a consolidation loan is based on current market rates. It can be found online through the U.S. Department of Education.
Apply for private loan consolidation with private education lenders. With this option, you will be taking a new, unsecured private loan to consolidate your previous unsecured private loans. When you consolidate, your new lender will pay off your previous loan balances. As this is a form of prepayment, you may face penalties. Always ensure the savings you can gain through consolidation are higher than any penalties. Never consolidate federal loans with private education loans according to FinAid.org.
Use existing assets to take secured consolidation loans. If you own a home, you may consider taking out a home equity loan to pay down your education debts, consolidating all of your loans. This is just one asset you can use. Other assets include stock portfolios, automobiles and land. As a rule, the value of the asset must be higher than the value of the loan you are seeking to consolidate. A key advantage to using a secured loan vs. an unsecured loan to consolidate private student-loan debt is obtaining a lower interest rate. Lenders prefer to extend loans against collateral as it gives them protection in the case of a default. The lower interest rates, typically fixed, that are available to you in this scenario reflect this preferred lending model, according to FinAid.org.