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 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. Have you ever thought of 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 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.
There are two types of student loan consolidation which are the federal loan consolidation and the private loan consolidation. The the government offers federal loan consolidation which applies to most types of federal loans wherein they are combined into a single loan with a new 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 difference between federal loan consolidation and private loan consolidation lies in the interest rate’s computation, 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 previously noted, student loan refinancing is availing of 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. 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.