At a Glance
If you’re looking to tackle your student loan debt, there are many options to consider. The two most common methods are student loan consolidation and refinancing your student loans. Both are often used in a combination to make your loans more manageable, but there are differences between the two. Taking a look at the two side by side, consolidate vs.refinance, and determine what is the best way to make the correct choice for your needs.
Difference Between Loan Consolidation and Loan Refinancing
First let’s look at the differences between loan consolidation and loan refinancing.
Student loan refinancing
Refinancing student loans is when a private lender pays off your debt and can provide a better interest rate for loan repayment. This is a way to make a plan that suits your needs for monthly costs as well as duration of time for loan repayment. Refinancing is a method you can use to combine your private and federal loans together to make them more manageable, it has the ability to be much more customizable to your specific situation. Also, the difference between percentage reduction in interest can save you thousands of dollars in the long run.
Student loan consolidation
Consolidation of student loans allows you to combine multiple federal loans into one loan. This means you will have one monthly payment instead of a bunch of individual loan payments. With Federal student loan consolidation, which is done through Federal Student Aid, you will still be able to receive deferment (postponement) and forbearance (hold off monthly payments). A deferment postpones loan repayments for a time depending on your unique situation, whereas a forbearance suspends payments during a period of time. These are key benefits of the federal loan consolidation.
When Should You Consolidate Versus When Should You Refinance Student Loans?
If you already have private loans, decent credit, and are looking to save some money, refinancing might offer you more benefits and save you the most in the long run. Refinancing also provides a bit more flexibility in terms of taking co-signers off the loan or changing responsible parties.
However, if you’re balancing several federal loans and could use the income-based repayment or loan forgiveness programs, consolidation may hold the most benefit for you. Consolidating your federal loan also gives you the opportunity to make a change in your student loan servicer if you’re unhappy with your current servicer.
The U.S. Department of Education offers a Direct Consolidation Loan consolidates multiple federal loans into one and has no application fee. This will simplify your payment structure while allowing you to take advantage of federal loan benefits, like having more time to pay off your debt, which can also lead to smaller monthly payments (albeit more interest in the long run).
If you’ve decided that refinancing is your path, do your research. There is no shortage of lenders, and it can be difficult to sift through their numbers. Determine your needs and find the right ones that meet them. Look into each company, learn about customer experiences and keep an eye out for any red flags in customer service or controversies. Finally, make sure to get estimates before you choose a lender.
Exploring the options that best suit your life and financial situation will help you find an effective way to tackle your student loan debt. Whether you choose to refinance your student loans or use student loan consolidation, you will have the best chance to overcome your debts. Achieving peace of mind and manageability is invaluable. Your time and your plan are unique to you. Working with specialists in student loan debt consolidation will give you the confidence in making the correct choices to meet your needs.
Commonly Asked Questions
Is it Better to Consolidate or Refinance Student Loans?
There are pros and cons between the two options that are worth considering. With student loan refinancing, there is the possibility that you can lose deferment and forbearance benefits. If you are in good financial standing, have a consistent income, and are ready to make the payments, this would not be something to worry about. However, refinancing also has credit requirements you must meet in order to receive the service. This can be difficult for someone just finishing college who does not have credit built up yet, and is an important consideration for anyone considering refinancing.
One of the great things about consolidating federal student loans is that there isn’t any requirement for Federal Loan Consolidation. This option is only for federal loans to be consolidated. This may be an option for you if you want to simplify your multiple federal loan payments. If you happen to have defaulted on your student loans and are looking to get out of default, this is another reason this would be a good choice for you. However, it’s important to note that loan consolidation could mean a longer term of repayment, resulting in more interest.