How to Consolidate and Refinance Your Student Loans
Student loan debt has been growing rapidly over the past few decades. In fact, student loans now total $1.5 trillion nationwide. If you don’t pay off your student loans soon, it could cost you thousands of dollars in interest payments each month. And even worse, there are some federal programs that won’t let you consolidate your loans unless you’re making less than $50,000 per year. So what do you do? You take out another loan, of course! But there’s a better way.
If you’ve got multiple student loans, you might want to consider consolidating them into one single loan. Before you do anything else, though, check out NerdWallet’s free guide to see whether you qualify for consolidation. Then read on for everything you need to know about consolidation and refinancing.
How Does Consolidation Work?
When you consolidate your loans, you typically get a new loan from a private lender with an attractive rate and terms. The catch is that you’ll be paying back two or more lenders at once — which can make it difficult to keep track of all your bills and repayments. Plus, if you miss a payment, you may have to start repaying your consolidated loan first before you can catch up on any missed payments on your other loans.
The good news is that most people who consolidate their loans end up saving money by doing so. That’s because they avoid having to pay additional fees when they file for bankruptcy, as well as interest charges while they work through the process.
But how much will you save? It depends on several factors, including:
• What type of loan you have (and whether you have federal or private loans)
• Whether you have federal loans that are currently being serviced by the Department of Education
• How many loans you have
• How long you’ve had your loans
• How much you owe
• What your monthly payment would be without consolidation
Low interest student loans
The best way to consolidate student loans is to look for a low interest student loan lenders, but not all types of student loans are eligible. Private loans are generally ineligible for consolidation, since they aren’t backed by the government. Federal loans are also ineligible, since they’re already guaranteed by the U.S. government.
What Are My Options For Consolidation?
There are three main options for consolidating your student loans:
• Loan consolidation: This option allows you to combine all of your federal loans into one loan with a lower interest rate.
• Student loan repayments plan: With this program, you can reduce your monthly payments based on your income.
• Graduated Repayment Plan: Under this plan, you can spread out your monthly payments over 10 years instead of 12.
Consolidated vs. Unconsolidated Loans
You should only consolidate your loans if you think you’ll be able to afford the higher payments. Otherwise, you’ll just be adding unnecessary stress to your finances.
If you decide to consolidate your loans, you’ll likely need to find a new lender. Your current lender may charge you a fee to transfer your loans to a different company. You may also have to provide documentation showing that you meet certain criteria in order to qualify for a consolidation loan.
If you don’t qualify for a consolidation loan, there are still ways to cut down on your monthly payments. You could refinance your existing loans, or you could take advantage of special offers available through your school or credit union.
