September 17, 2020
Paying off student loans to several different places can be overwhelming. Due dates for payments vary throughout the month and it’s hard to keep track of them all. Having one manageable payment for all of your loans might sound like a dream, but is combining all your loan payments as good as it seems?
Consolidation means combining your federal loans into one payment with one provider. Eliminating the multiple payments can simplify your monthly repayment. Other ways consolidation can be a good idea is to change your interest rate from a variable rate to a fixed rate.
Only federal student loans can be consolidated. Any private loans that you have taken out for school can’t be consolidated with your federal loans. Combining your private and federal loans is called refinancing. Refinancing is different from consolidation.
Federal loans all originate from one place—the government. It’s like borrowing money from your parents for several different things. You owe the same person several different amounts. You can put them all together and owe them a single sum. But you can’t lump together loans that are from separate providers. That’s where refinancing comes in. Refinancing means one private loan provider pays off all your current loan providers. Then you would owe them for the total they paid off plus a new interest rate and different repayment terms.
Take careful consideration before you decide to consolidate or refinance your student loans. Refinancing to lower your monthly bill can lengthen your repayment plan and cost you more than you realize. The longer your loan is accruing interest the more interest you will pay. Only consider refinancing or consolidating your student loans if:
Don’t consolidate or refinance your loans if you currently have a competitive interest rate. Also remember that refinancing could remove the benefits of forbearance, deferment, and more. Do your research carefully before going through with consolidating or refinancing your loans. Lower monthly payments may sound enticing now but could actually cost you more in the long run.