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 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. Do you want to either consolidate or refinance 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.
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 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. 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. 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. Through student loan refinancing, you are lowering your monthly payments, saving on the total interest, shortening the term of your debt so you can pay it sooner, choosing a variable and flexible interest rate loan, and be getting a consolidated and simplified bill. Remember that before you select the type of consolidation for you, there are protection and benefits offered by federal loans such as income-driven repayment plans that are not available to private lenders.