Student Loan Options: Understanding Student Loan Consolidation and Refinancing
Many people think that student loans make them feel powerless but anyone can achieve more control that they originally thought. We will help you understand different student loan options so you can decide wisely and achieve your financial goals. Do you want to either consolidate or refinance 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.
There are two types of student loan consolidation which are the federal loan consolidation and the private loan consolidation. The the government offers federal loan consolidation which applies to most types of federal loans wherein they are combined into a single loan with a new 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. Lowering your monthly payments may mean that your payment term is lengthened 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. 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. Private lender consolidation is, in fact, a type of refinancing your loan.
As already previously said, student loan refinancing is availing or applying for a new loan to pay off one or more existing student loans. Having an improved financial situation when you first sign the contract, allows you 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. 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.