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Student Loan Consolidation vs. Refinancing: Which Is right for you?

13th April 2018 Print

Sometimes student loans become more costly than when you first took them out. You may have deferred your loans or needed to use income-based repayment. Or you took out a lot of loans in order to get your degree, and your income simply isn't enough to make your monthly payment and still have cash left over to pay your other bills. It's time to take a look at consolidation or refinancing to reduce those monthly payments. The question is: which one is right for you?


The basic concept behind consolidation is that you take multiple loans and turn them into one loan. You don't have to focus on making a bunch of payments every month, and you can potentially lower your interest rate. A consolidated loan removes the stress of making multiple payments, plus there's a light at the end of the tunnel in regards to paying off your debt. No longer are you monitoring your balance and wondering when you might be able to get out from the weight of debt. Instead, you make one payment that reduces your debt at a predictable pace.

Some people say that loan consolidation isn't a good idea because it will put you in debt longer, and you can lose some borrower benefits if you have government loans. While there are cons to loan consolidation, having one simple loan can help you avoid missed payments and reduce the stress of managing multiple loans. Consider the pros and cons of consolidation to see whether it fits your situation.

Loan Refinancing

If you have federal student loans, you can refinance them through private lenders. This gives you the opportunity to lower your interest rate and roll the loans into one private loan. However, you do lose the ability to lower your payments through income-based repayment plans, deferment with no interest charged on subsidized loans, and access to loan forgiveness programs. That's the bald facts that come with taking loans out of the federal loan program and going private. But it's not the whole story.

Private lenders need to make their products appeal to potential borrowers who would otherwise stay with federal loans. To that end, they offer similar programs such as forbearance which allow borrowers to suspend payments for a specified period of time. Check the terms offered by a private lender before making the move to refinance.

Do Nothing at All

Doing nothing with your loans is perhaps the worst decision you can make, especially if you're having trouble with making loan payments. Granted, it's easy to let time go by and forget that you should be taking action, but debt doesn't get better with time. Delays in making payments will cause fees and interest to snowball and will make your loan more difficult to pay off than before. Whether you refinance or consolidate, make a plan so that you can manage your debt and improve your financial situation.   

Student loan debt doesn't have to overwhelm you and your income. Loan refinancing or consolidation can help make your loans manageable through a lower interest rate and a single payment.

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