Understanding 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. We will help you understand different student loan options so you can decide wisely and achieve your financial goals. Are you considering consolidating or refinancing your student loans? What are the definition of these terms? You may have a lot of complicated questions in mind, but student loan consolidation is simply the process of combining multiple student loans into a single loan with different 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. When you consolidate with federal government, you are combining federal loans into one loan with new terms and rate basing on your old loans’ rate weighted average. There are many benefits when applying for federal loan consolidation that may include tracking of fewer bills and payments each month, protection from paying higher rates, and lower monthly payments. But beware because lowering monthly payments is usually the result of lengthening the payment term of your loan which means that you actually have to pay a higher interest over the life of your loan. Private loan consolidation is similar to the benefits and the definition specified under federal loan consolidation. 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. Private lender consolidation is, in fact, a type of refinancing your loan.
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.
More information: Full Article