Student Loan Options: Let’s Talk About Student Loan Consolidation and Refinancing
You might be wondering how you can take some control of your student loans because it makes you feel powerless, but this is possible beyond what you actually think. Allow us to help you understand your options when it comes to student loans so you can make smart decisions and help you in achieving your financial goals. Are you considering consolidating or refinancing your student loans? What does it mean by student loan consolidation and refinancing? There are a lot of conflicting questions since these two terms are used interchangeably, but student loan consolidation is to combine multiple student loans into one with various results from federal government and a private lender. On the other hand, student loan refinancing is applying for a loan under newer terms and conditions to use that loan to pay off one or more current student loans.
There are two types of student loan consolidation which are the federal loan consolidation and the private loan consolidation. When you consolidate with federal government, you are combining federal loans into one loan with new terms and rate basing on your old loans’ rate weighted average. The benefits of applying for federal loan consolidation may include tracking of fewer bills and payments each month, protection from paying higher rates, and lower monthly payments. Beware though because lowering your monthly payments may mean that your payment term is actually lengthened which means that you actually have to pay more interest over the life of your loan. Private loan consolidation is similar to the benefits and the definition specified under federal loan consolidation. It differs though when it comes to the interest rate, wherein a private lender looks at your track record of how you handle your debt and will give you a newer and lower interest rate on your consolidated loan. Private lender consolidation is, in fact, a type of refinancing your loan.
As already previously said, student loan refinancing is availing or applying for a new loan to pay off one or more existing student loans. Having an improved financial situation when you first sign the contract, allows you to avail of student loan refinancing at a lower interest rate. Doing so allows you to lower your monthly payments, shorten the term of your debt so you can pay it sooner, save on the total interest, choose a variable and flexible interest rate loan, and a simplified bill. Before choosing between federal and private loans , keep in mind that there are benefits and protection offered by federal loans such as income-driven repayment plans that are not available to private lenders.