So you have completed your Degree. It is an amazing time. All that work and effort that you put in to finally get that recognition and respect, years of your life, late nights and maybe early mornings cramming to get across the finish line of that one module course that you couldn’t stomach.
After the bliss and happiness of reaching that pinnacle you realize that you are left with a mountain of debt. Don’t worry, you are not alone.
In fact around 70% of all students have a significant amount of debt hanging over their heads. Approximately 44 Million students in America carry a collective principle debt of $1.5 trillion….cough $1.5 trillion. That is a crazy amount of debt. The impacts of which have been well documented, to the country and economy.
Private Student Loan Consolidation is a phrase that frequently comes up and it is definitely worthwhile looking at. There are several options available to you and plethora of websites teaching you all that you need to know and how to make the best decision given your situation.
If you are just starting out investigating then findaloan247 is a good place to start.
Consolidation or Refinance? Which works best for you?
Deciding on whether you are going to consolidate your loan or refinance is really important. It can effect your bottom dollar by hundreds of dollars in not thousands over the term period. You have the option to consolidate Federal and Private loans….but don’t get caught out consolidating your Federal loans with a Private Lender. You can lose a heap of options available to you as a Federal Loan Subscriber when you do this.
Be sure to ask anyone you are talking to about impact and options to your Federal Loans when thinking about consolidation.
So often the terms Consolidation and refinancing are used to describe the same thing.
At a super high level consolidating your loans is simply combining your multiple loans (depending on the type) into one loan. The result is a single payment which is easier to manage to most individuals
It also gives you some sense of accomplishment and lessons the anxiety slightly in that you only need to worry about a single repayment during you busy life.
Consolidation, as an activity can be applied to both Federal and Private Student loans. Remember to take the other factors such as loan term, interest rates etc into account when performing you analysis and be sure to weigh you options when thinking about Federal Loan Consolidation.
Student loan refinancing is essentially student loan consolidation, but the consolidation is agreed with a Private Lender. Often these terms and phrases are inter changeable, depending on who you talk to.
You may consolidate you loans with a private lender, but in reality, under the hood you agree terms to a new loan which is used to settle you existing student loans. In that sense, you are in essence re-financing.
If you are making a decent amount of money, which is the hope of us all after graduating, then the Private refinancing option could be more financial beneficial to you.
You may be able to secure a new loan with more favorable interest rates and payments, allowing you to settle the other outstanding Loans (Federal or Private) and giving you some financial relief.
What is the best Strategy ?
As previously indicated, when you refinance your Federal loans with a private firms you could lose the associated benefits and debt relief options available to you through the Federal Government.
For this reason some advisers advocate using a strategy that will keep personal and Federal loans separate. In that way the benefits and options available to Federal Loan holders can be maintained.
It does mean that you need to keep track of at least two payments ( one for your personal loan consolidation or refinancing and one for your Federal Loan consolidation)
I am a fan of keeping the two separate loan domains and maintaining your Federal options. You may be lucky enough to never need your Federal options and benefits, but I prefer having the options available.
Federal Loan Consolidation
As the heading suggests it’s the ability to consolidate Loans and is offered by the government for the majority of Federal loans.
Simply put, you’re existing Federal loans are combined into one new loan. Importantly, the new interest rate that you obtain is a weighted average of your previous loan interest rates.
Even though this consolidation is unlikely to offer you savings it can provide you with less of a headache in terms on managing payments, as you consolidate your payments to one.
You monthly payments may be lower, but the term on the loan could be also longer. The net effect gives you financial relief each month, but you may end up paying more down the road in interest.
Still, when you need to reduce your monthly outgoings its definitely worth looking at. I have done this in the past when I needed to reduce my monthly in a difficult period.
Private Loan Consolidation
Private Loan consolidation aka Refinancing through a private lender, allows you to combine all of you’re existing loans into one single loan. Sounds great, but beware the interest rate on your new, consolidated loan is NOT the weighted average of your previously existing loans’ rates.
You are essentially refinancing you’re existing loans, with a new interest rate.
Just like the rest of us, when faced with applying for Credit or Capital funds, your personal data will be looked at to determine risk and this will impact the interest rate you get offered by the Financial Institution.
In some cases, if you are earning well and have a decent looking Credit score ( indicating acceptable Debt management) then you could reap the benefits of this strategy.
Make sure you crunch the numbers before signing anything! You do not want to place addition financial stress on yourself. That is not the goal, obviously, of Debt Consolidation.
So we hope you have some clarity on the options available to you in the Student Loan Consolidation space.
It does take some time to work out what you want and what the net effect is on your financial obligations, but its well worth doing, whether its Private Student loan Consolidation or Federal Student loan Consolidation.
Editorial Note: This content is not provided or commissioned by any financial institution. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and may not have been reviewed, approved or otherwise endorsed by the financial institution