If you have recently graduated from the university, you’re probably bombarded with mailings and ads asking you to refinance (or consolidate) your student loan immediately. But what is loan consolidation? And why would you do it?
If you just graduated from college, you are probably a number of student loans, all in different quantities from different lenders at different interest rates. Loan consolidators (can be private banks, lenders or government agencies) to pay all your individual loans in exchange for a single loan in the same amount to you. So now instead of all the different loans, you have a loan that you repay to the consolidator.
Refinancing your student loans reduces your monthly payments and locks in a fixed interest rate. In most cases, student loans have variable interest rates a few points below prime. Since the interest rates up, so will the interest rate on your loan. When you refinance your loan, you lock in a rate based on current market conditions, for the life of your loan. Therefore, it is important to assess before the decision to consolidate. Right now, interest rates are low, but they rise, and most economists expect that they will continue for a while. For many people, this is a good time to refinance.
Your credit history will also determine your eligibility for loan consolidation programs. Loan consolidators can be picky in it for their programs, so that the possibility of refinancing is usually only for people with good credit to pay their loans back on time. If you missed payments or late payments consistently, can not be offered the best terms when you look at all accepted. If your application is refused the first time, call the consolidator and speak with a loan officer about the reasons for your rejection. This can give you advice on how the requirements for their program at a later date.
If you decide to refinance, you need to go to federal loans and private loans separately from each other. If you consolidate your loans, you can usually a sentence of 1-2% lower than the average rate of the loan. Federal student loans often have lower interest rates than private loans, so consolidating them together can bring the average rate on loans and leave you with a higher fixed rate locked in. If you only have a private loan, it may not make a difference , but it is important to consider before making your options for refinancing.
Is there anyone who does not consolidate? Let’s take a look at a scenario. Tracy has 2 loans for $ 5,000, which is expected to be paid within 5 years. They can afford their monthly payments but wants to see if they can be a little money each month by consolidating. She finds out that they refinance the loan into a $ 10,000 consolidation loan to lower their monthly payments and they will come to see their payments over 8 years. But because it’s the life of their loans, they’ll be interest over a longer period, and wind can pay more than if they had their loans, as they were.
It is tempting to pay less per month, but if you can afford it, pay your loan in a shorter period, then you are probably interested in saving money in the long run. Of course every situation is different and you will not find all your answers in a short article like this. But if you think that could loan consolidation is right for you, whether you have the Student Loan Network’s website at Studentloanconsolidator.com for more information or speak with a loan officer or financial planner to see what your options are.