With a lot of confusing information about student loans, it’s not easy to know which option is best for your financial situation. Many students don’t know much about refinancing or consolidation, both of which can help you if you’re struggling to make your payment each month.
What to Know About Refinancing
Refinancing your loan means you will take out a new loan to pay off the outstanding amount of debt you have and combine those loans into one. The benefit of refinancing is it gives you the option to look for better interest rates and terms for repayment. When you apply for your first student loan, you may not have much credit history, so you could end up with a high-interest rate or difficult repayment terms.
Refinancing your loan after you graduate could give you a lower payment amount, making it easier to pay off the total sooner.
When Refinancing Makes Sense
It makes sense to refinance your loan if your interest rate is higher than the current average. Check out the rates to figure out whether you could save money by refinancing to a loan with a better rate. If you have a steady source of income and a good credit score, you should qualify for refinancing. You could save quite a bit of money, especially if you have a lot of outstanding debt after you graduate. In fact, a refinance could save a student as much as $11,000.
Choosing to refinance is not a one-size-fits-all solution, so make sure to weigh the pros and cons before you make a decision. Online resources make it easier to see the current interest rates for student loans, along with options for refinancing.
What to Know About Consolidation
Student loan consolidation is for graduates who have multiple outstanding loans from different lenders. Most people who consolidate their loans do so for convenience since it’s easier to make one monthly payment than it is to keep track of payment due dates and amounts.
When Consolidation Makes Sense
Consolidating your student loans doesn’t always benefit you from a financial standpoint. When you consolidate, you will likely extend the term since you are increasing the total amount due on a single loan. As a result, you may wind up paying more interest over the life of the loan.
Loan consolidation can also cause you to lose certain borrower benefits, such as principal rebates or interest rate discounts. Before you agree to any consolidation terms, make sure you understand the interest rate and how much you’ll pay by combining your loans into one.
If your student loans are through the federal government, you must go through government-backed consolidation programs. Private educational loans are not eligible for consolidation through those programs, although you might be able to consolidate through private lenders.
When you have the right information, you can make a more informed decision about refinancing or consolidating your student loans. Talk to your lender and look into these options to figure out if one is a good option for your financial situation.