Student Loan Debt Consolidation: Tips For Responsible Refinancing
In today's economy, there are few things more frustrating than having a college education but little more to show for it than a hefty student loan. Student loan debt can easily put quite a strain on your financial situation, making it difficult to save for the future or even make ends meet. If you find yourself in this situation, it may be possible to consolidate your student loans into one more affordable payment. However, there are a few things that you need to consider before making a change.
Federal Loans and Private Loans Are Totally Different Animals
While federal and private student loans are both often offered to college students, federal loans have a fixed interest rate and benefits such as deferment while you are in school or forbearance if you are unemployed and unable to pay. Private loans, on the other hand, can possibly have variable interest rates and do not defer if you are a student.
Also, consolidation for the two works differently. Federal consolidation programs will not consolidate private student loans, and while it may be possible to consolidate the two through a private lender, you may lose some of the benefits of the federal loan in the process.
Sooner May Be Better Than Later
If you are looking at a consolidation loan, it is important to remember that when you sign a new Master Promissory Note, the time frame of the loan starts over. If you are in the tenth year of a thirty year loan, and decide to consolidate your loans with a thirty year term, the ten years that you have already paid do not count toward the new loan at all. One way to avoid this is to consider the amount of time that you have left on your current loan payment schedule, and use that amount of time for the term of your consolidation loan. You may still save money by getting a lower interest rate, but you will not be paying on student loans for another thirty years.
Avoid Loans that Charge an Early Payoff Penalty
Sometimes, consolidating student loans for a longer term has its advantages. It may be possible to lower your payments to a more affordable amount and pay more than the minimum each month. This is a great way to pay off your debt more quickly. However, be very careful to make sure that the consolidation loan that you are considering does not charge a prepayment penalty. If it does, you may end up owing more money for paying your loan off early.
Student loan debt consolidation can be a great way to regain control of your finances. Just make sure that you are refinancing your education responsibly.
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