If you were lucky enough to get into college and stayed on the straight and narrow and graduated with your chosen degree, then you probably only owe about $30,000 or $40,000 in debt. Now, if you chose to switch degree paths or you moved to a different school, then you likely have more like $50,000 or more in debt. In fact, some students graduate with over $100,000 in debt and do not even have a medical degree or lawyer degree! It is insane.
Okay, now that you have been reminded about the debt you owe, there are some options to help make your student loan debt much more affordable. In fact, you have two main options, which include private student loan refinancing and federal student loan consolidation. Let’s delve into them a bit more and find out HOW they make your loan much more affordable and cheaper.
Private Student Loan Refinancing
Student loan refinancing is common and a choice that many students choose to make. The process is similar to consolidation, but is a bit different. Refinancing your student loans aims to help you better afford your loan payments by offering a better interest rate and lowering your payment.
There are some wonderful pros and of course, cons to student loan refinancing, so let’s take a look at them.
Pro 1: Better Interest Rate
When you refinance your student loans, you will receive a better interest rate than the one you currently have, thereby saving you tons of money. It is not uncommon to receive an interest rate in the two to four percent area. This means that your student loan payments will be significantly cheaper each month and you will pay a lot less in interest over the term of your student loan.
Pro 2: Shorter or Longer Repayment Terms
If you want a shorter repayment term, you can get it when you refinance your student loans. Many students who are looking to turn their 25-year repayment plan into a 5-year or 10-year plan can make it happen. In addition, you can choose to extend your repayment to make your monthly payments more affordable.
Pro 3: Consolidate Multiple Loans
When you refinance your student loans, you can combine multiple loans (both federal and private) into one new loan. This loan may not only have a lower interest rate, saving you money, but it also will be easier to pay, saving you time as well.
Con 1: Need Good Credit
The biggest downside to student loan refinancing is that you need to have a good credit score and good credit history for it to happen. There are usually other requirements as well, such as a steady job history. Most lenders require a minimum of a 690 credit score and even then, your score may not be enough to get you the approval.
Con 2: Lose Benefits
If you do not need your federal student loan benefits, then this will not affect you, but if you do need them, consolidation may not be right for you. When you consolidate your student loans, you lose the option to adjust your payment plan and you may lose the chance to apply for a loan forgiveness program.
Federal Student Loan Consolidation
Federal student loan consolidation is an option available to students who are looking to combine their loans and pay a lower monthly rate. The federal process of consolidation includes combining multiple student loans together to form a single loan.
There are some benefits and drawbacks to consolidation, so let’s explore them now.
Pro 1: Lower Monthly Payments
Consolidation can often lower your monthly payment by extending the length of your term. Of course, it is not always a guarantee, so it is important to find out BEFORE you sign the contract just how consolidation is going to help you lower your payments. Keep in mind that extending your repayment term will result in paying more in total for your loan.
Pro 2: Easy and Simple
Student loan consolidation makes dealing with your student loans simple and easy. The way this works is by your new lender combining your loans together, therefore, you only have to pay on one loan. No more multiple loan payments going to different places. Student loan consolidation is usually a great idea for those students who have a hard time juggling all of their different student loans.
Con 1: Do Not Save Money
When you consolidate your loans with the Department of Education, you do not have the chance to receive a lower interest rate. Instead, your new loans will have a weighted interest rate of your old loans plus an eighth of a percent. So, technically you are losing money by consolidating.
Private student loan refinancing can help you save money over time and will allow you to easily control and manage your student loan payments. Federal consolidation won’t necessarily save you money, but can make repayment more manageable. Before you choose to consolidate or refinance, you need to make sure it is the right option for you.
