American Education Services, usually called AES, is one the largest servicers of federal and private student loans in the United States. Many AES borrowers may face the question of whether or not they should refinance or consolidate their AES loans. In some cases, refinancing or consolidating can be an essential step in debt elimination. In others, it is a huge mistake.
As a large loan servicer, AES should be well equipped to discuss consolidating loans. Sadly, the customer service representatives are not always the most knowledgeable when it comes to repayment strategy.
Today we will talk through the details to consider before refinancing or consolidating any AES student loan. We will explain how and why borrowers might consolidate or refinance their loans.
Is it Consolidation or Refinancing?
Consolidation and refinancing are terms often used interchangeably. However, they are not the same thing. Before getting into the strategy and steps for enrollment, it is essential to first define the differences.
Federal Student Loan Consolidation – When done properly, federal student loan consolidation can help borrowers become eligible for better repayment plans and student loan forgiveness. When mistakes happen, loans can potentially lose eligibility for these programs. Federal consolidation does not lower interest rates.
Private Student Loan Refinancing – Unlike consolidation, refinancing is done with a private lender, such as SoFi or LendKey. The refi lender pays off a borrower’s old student loans. The refi lender creates a new, and the borrower starts repayment with the refinancing company. The advantage of refinancing is lower interest rates, but it can cause borrowers to lose the perks that went with the old loans.
Refinancing and consolidation both have a very similar process. In both a refinance and a consolidation, old loans are paid off in full and replaced by newer, larger loans. Borrowers choose to refinance or consolidate to save money on repayment, though the way they save is considerably different.
Refinancing AES Student Loans
Refinancing AES student loans is the best way to get a lower interest rate on AES loans.
How Do I Refinance AES Student Loans? – Borrowers wishing to refinance their AES loans need to apply with a student loan refinancing company. At present, about 20 different lenders are providing refinancing services. Once approved, borrowers will send the AES loan information to the refinance company, usually a recent bill or a payoff statement. The refinance company then sends a check to AES, and the AES loan is officially off the books. Borrowers should be sure to get a paid in full letter from AES for their records. The borrower then repays the refinance lender according to the new loan terms.
Why Refinance AES Student Loans? – The idea behind the refinance is to get better loan terms, which typically means a lower interest rate. Borrowers may also opt for a longer repayment length, which can mean lower monthly payments.
All AES student loans are eligible for private refinancing, including both federal and private student loans. However, borrowers with federal student loans should carefully consider their options before refinancing. Once the old loan is paid in full, the loan terms are gone forever. That means that borrowers who refinance lose access to the federal repayment plans and student loan forgiveness programs.
Why would a lender offer lower interest rates? – Student loan refinancing has become a highly competitive, profitable industry for many lenders. They profit by identifying borrowers who are most likely to repay their loans. As college students without a degree or a job, most student loan borrowers are a risky bet and frequently end up with higher interest rates. As graduates with a degree and a job, and usually a better credit history, they are far more likely to repay their debt. If a lender decides that a borrower is unlikely to miss payments, they will offer a better interest rate. At present, refinance rates start around 2%.
When should I refinance? – The strategy behind a refinance depends upon a variety of circumstances. Borrowers will want to be extra careful with federal loans. Several different circumstances can influence when the timing is best to refinance.
Student Loan Consolidation with AES
Consolidating AES student loans is a fairly easy process, and it can have pretty big advantages.
Why Consolidate AES Student Loans? – Federal consolidation of AES loans, or any federal government loan, is all about program eligibility. Some federal student loans, such as FFELP loans, are not eligible for all of the Income-Driven Repayment Plans, and these same loans are not all eligible for Public Service Loan Forgiveness. Consolidation turns the old loans into a federal direct consolidation loan. Federal direct loans may be eligible for preferred repayment plans or PSLF.
Note: Not all federal loans qualify for all repayment plans and forgiveness programs.
For example, including a Parent PLUS loan with other federal loans in a federal direct consolidation means that the new larger loan is not eligible for repayment plans such as Income-Based Repayment (IBR), Pay As You Earn (PAYE), and Revised Pay As You Earn (REPAYE).
Think of the Parent PLUS loan as a poison pill that can ruin the entire consolidated loan. Be sure to talk with your loan servicer about consolidation consequences.
How Do I Consolidate AES Student Loans? – AES does not provide consolidation services. Instead, the Department of Education completes the consolidation. Federal Student Aid provides a single website for all federal consolidation applications, regardless of servicer. This means that borrowers with multiple federal servicers for their loans will only need to submit a single application.
We should also note that only federal loans can go through federal student loan consolidation. Borrowers who have private loans with AES will only have the option to refinance.
The federal consolidation application is easy to fill out. However, the actual process can take several weeks or even months. During this time, borrowers get a letter stating which loans are being consolidated and given a final opportunity to opt-out. After consolidation, there is no way to reverse or “un-consolidate” the loans.
Refinancing and consolidating are two unique ways that borrowers can save money on their AES student loans. Borrowers should carefully consider their options before deciding to refinance or consolidate. When done properly, savvy borrowers can save thousands and get their debt repaid years earlier.