Student Loan Options: Let’s Talk About Student Loan Consolidation and Refinancing
Many people think that student loans make them feel powerless but anyone can achieve more control that they originally thought. We will help you understand different student loan options so you can decide wisely and achieve your financial goals. Do you want to either consolidate or refinance your student loans? How do we define these terms? You may have a lot of complicated questions in mind, but student loan consolidation is simply the process of combining multiple student loans into a single loan with different results from federal government and a private lender. On the other hand, student loan refinancing is an application for a new loan with a new set of terms in order to use the loan for paying off any existing one or more student loans.
When it comes to student loan consolidation, there are two types which are the federal loan consolidation and the private loan consolidation. Federal loan consolidation is a student loan option offered by the government available to most types of federal loans, wherein existing federal loans are being combined into a single new loan with a new rate, and it is usually the weighted average of the rates of your old loans. The advantages you can get by utilizing federal loan consolidation include fewer payments and bills to keep track each month, protection from paying higher rates, and lower monthly payments. But beware because lowering monthly payments is usually the result of lengthening the payment term of your loan which means that you actually have to pay a higher 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. 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. 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 mentioned, student loan refinancing is the application of 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. By doing so, you are lowering your monthly payments, shortening the term of your debt so you can pay it sooner, saving on the total interest, choosing a variable and flexible interest rate loan, and getting a consolidated and 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.