A lot of college graduates are left wondering if it was worth going to school at all, given the economic trends of the last 25 years. In the past, a college degree almost guaranteed you a good job.
Still owing the money on a loan even though you may not have completed your degree or found a high paying job.
Just a reminder that it does not matter if you hated the program, professors, school, or the mascot. You signed on the dotted line and it’s now your responsibility until you pay off the loan.
When debt on top of more debt is staring you in the face, it may be time to consider a student loan consolidation.
What Is Student Loan Consolidation?
Student Loan Consolidation is when you take out one new loan that pays off your existing student loans. In this process, you simplify from multiple payments and providers down to just one monthly payment.
With federal student loans, you take out a new federal loan through the Department of Education. This leaves you with one monthly payment, and one loan that encompasses all of the loans you took out while you were in school.
The interest is based on the weighted average of the loans you consolidate. Keep in mind that the fixed rate of interest could vary from the 8% interest applied to most federal student loans. This could be higher or lower.
Consolidating private student loans is also called Refinancing. If you qualify with a private lender, you can roll your existing loans into one new loan while simultaneously lowering your interest rate and saving you money.
You cannot consolidate federal and private loans together into a new loan with the Department of Education. However, you may be able to with a private lender.
(Note: Should I consolidate my student loans? is a question we get all the time here. That’s why we created this easy guide you can download for free to help you understand if a Student Loan Consolidation is the right choice for you. Click here to learn more.)
Student Loan Consolidation vs Refinancing: What’s The Difference?
Student Loan Consolidation is the creation of a new federal student loan with the Department of Education that pays off and combines all of your existing student loans into one loan.
Consolidation does not save you money over the course of your loans, but you may gain access to new repayment plans or forgiveness plans.
You can take advantage of lower interest rates, and potentially consolidate both your federal and private student loans in the process. Refinancing can specifically save you money.
If you combine your federal and private loans in the process, you do lose access to federal protections and repayment options.
Student Loan Consolidation is NOT Refinancing…
Because the interest rate is fixed based on an average, the Direct Consolidation Loan may not really save you as much money as it wraps all the loans into one easy payment because… well, people have a hard time keeping track of things.
Also, if we’re being honest, when debt outpaces income, we get depressed, pretend it doesn’t exist, eat ice cream, and binge-watch Netflix.
But the refinanced loan will have completely different terms and you may be able to negotiate a lower interest rate.
I recommend going through your credit union or shop around for one who will play ball. They are more than likely to kiss your rear on bargaining for your business.
Talk to a few credit unions and see who will offer the best terms. Of course, this will be based on your income and credit score so quit applying for credit cards.