5 Reasons Why You Should Refinance and Consolidate Your Student Debt TODAY
By Jacob, Chief Blogging Officer @DollarDiligence. Jacob beat his student debt and is working to help others do the same.
With rising college costs and shrinking federal subsidies, student loans are quickly becoming a financial crisis in this country. Recent college grads leave school with over $35,000 in student debt, according to USA Today. Though it seems like student loans are a growing burden, there are things people with student debt can do to reduce monthly payments, interest rates, and the time it will take to pay off. Refinancing and consolidation options exist that can help improve your credit and lift the burden of student debt.
Why should you consolidate and refinance your student loans? We’ve got five great reasons right here.
#1 Pay all your federal student loans in one place.
The rules around federal student loans can be confusing, but there are rules to help you pay them off too. If you have several different kinds of student loans and it’s hard to keep up with paying different loan holders every month, federal student loan consolidation can help you get all your federal loans together.
Be careful, though.
When you take advantage of US government student loan consolidation, you may jeopardize your ability to seek student loan forgiveness or other federal benefits like income-based repayment plans.
#2 Take advantage of a higher credit score.
Private student loans are just like any other private loan in that they affect and are affected by your credit score. This sounds scary when you first sign up for the loans, but it can work in your favor if you’ve improved your credit score while you’re in college.
If you have a higher score when you graduate, you can refinance and consolidate your private student loans at a lower interest rate. Because you have a higher credit score, the lenders will see you as less risky and will often give you a better deal. Do you know your credit score? There are many ways to get it for free to see if you may qualify before applying.
#3 Get more time to pay off your loans.
Both federal and private student loan consolidation can extend the life of your loan, so you can pay it off over, say, 30 years instead of 15. This spreads your payments over a long period of time, which can reduce them, much like they do with other long term loans like mortgages.
In terms of private consolidation (same as refinancing), you can also reduce the overall interest you pay on your loan, which is super important if your loan has a longer life. Of course, this does mean that you will be paying your loans for longer. This makes refinancing with a longer repayment term good for people who have recently graduated. However, it should be noted that there are term lengths as short as 5 years for individuals looking to pay down loans quickly.
#4 Get your pick of refinancing companies.
You can have your choice of lenders and banks when you consolidate or refinance your loans. Instead of being stuck with whoever bought your loans, you can shop around to find the loan company who can give you the lowest interest rates and negotiate the best terms. Some of the leading student loan refinancing companies include SoFi, LendKey, Citizens Bank, and Earnest. They will compete to have the lowest interest rates, so check all their terms to see which company is best for your debt.
#5 Lower your monthly payments.
All of these options for refinancing and consolidating student debt are aimed at lowering what you pay every month. They do this in different ways. Federal student loan consolidation lowers them by getting you a lower rate on one loan rather than different rates on a whole bunch of loans. Private student debt consolidation can do the same, but it also lowers your monthly payments by using your credit score. All consolidation also lowers monthly payments by letting you pay off your student loans over a longer period of time.
Putting It All Together
No matter your reason, it’s a smart move to consolidate or refinance your loans, both federal and private. When you get all your loans together in one place by consolidating, you can negotiate for the best rates and terms on that one loan. Consolidating and refinancing student loans lets you pay less every month for a longer amount of time, so that you’re not burdened by student debt and you can get back to your life.