Student Loan Options: Let’s Talk About Student Loan Consolidation and Refinancing
You might think that student loans make you feel powerless but you can achieve more control than you can imagine. Allow us to share with you some important insights about taking control of your student loans so you will be assisted on how to make smart decisions when it comes to achieving your financial goals. Are you considering consolidating or refinancing your student loans? How do we define these terms? 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, you can apply for a new loan which is refinancing, with a new set of terms and use it in paying off your existing one or more student loans.
The two types of student loan consolidation 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 federal consolidation which allows you to combine multiple loans into a single loan, and offering the same benefits. The the difference lies in the computation of the interest rate wherein a private lender looks at your track record of how you handle your debt and other financial details, and will give you a new and lower interest rate on your consolidated loan. When you are consolidating your student loans with a private lender, then you’re also, in fact, going through the process of refinancing your loans.
As already previously said, student loan refinancing is availing or applying for a new loan to pay off one or more existing student loans. If you have an improved financial situation when you first sign the contract, then you may be able 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. Keep in mind that before you choose between federal or private consolidation, there are protection and benefits offered by federal loans such as income-driven repayment plans that are not available to private lenders.