There are many advantages to a student loan consolidation or refinance. College graduates typically receive funds from multiple lenders, which can mean more than one monthly statement. In addition, some graduates have loans with variable rates, which can increase or decrease according to the current market rate. A college loan consolidation is the perfect way to simplify your finances. With this option, you receive one monthly statement and deal with one lender. However, to benefit the most from a consolidation or refinance, make sure you know how they work.
What is a Student Loan Consolidation or Refinance?
The ultimate goal of a college loan consolidation or refinance is to reduce your monthly debt payments. On average, graduates are only given a grace period of six months. It can be difficult to find a good paying job within six months. What's more, it can be hard to afford a high student loan payment. With a consolidation or refinance, graduates can combine all their student loans into one new loan and receive a lower rate. The monthly payment on the combined principal is normally less.
Why Consolidate or Refinance a College Loan?
Graduates consolidate or refinance their student loans for three major reasons. One, they want to lock in a low interest rate. Since a majority of student loans have a variable rate, monthly payments can rise or fall with every rate adjustment. On the other hand, fixed-rate student loans are predictable and the payments remain the same. The second reason is to simplify finances. It is easier to manage one student loan payment as opposed to two or three. Lastly, consolidations and refinances offer several repayment options, which help keep payment lows. Choose a standard payoff time of 10 years, or extend the loan to 30 years.
What to Know Before a Consolidation or Refinance
Although a college loan consolidation offers lower payments and extended loan terms, these options increase the overall costs because you'll pay additional interest. Making a few extra payments throughout the year, or paying a little more on the principal each month will help reduce the total interest cost.
Another drawback with a student loan consolidation or refinance is that you might lose your grace period. Federal Direct Consolidations uphold a grace period. Other consolidated loan programs such as Stafford do not offer a grace period. If you need a grace period, do some research before applying for a consolidation or refinance.
Save up to $100's monthly by using one of our Recommended School Loan Consolidators Online. We maintain recommendations for both private and federally funded consolidators