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Should you consolidate student loans or not? This is a question we have an entire generation asking. Is it worth it? What are the advantages and disadvantages? If I have some federal and some private student loans, can I refinance them together?
There is a lot to consider, and there's a lot at stake. The total US student loan debt amount just hit $1.3 trillion and over 1 million people defaulted on their loans in 2016 [source]. This means that virtually the entire next generation of our workforce – the body of people that are supposed to propel our economy forward start their journey under water and saddled with debt. I'm not saying this to discourage you, but to point out 2 things:
While those points need some serious consideration, let's talk about you, the individual. You still have your student loan debt. Thankfully, there is something you can do about it. There are legitimate ways you can refinance and/or consolidate student loans that could work great for your situation.
The Obama administration decided that debt collectors could not charge high interest rates (upwards of 16%) on outstanding older FFEL student loans. Provided the borrower entered a debt rehabilitation program within 60 days. The Trump administration just told debt collectors to disregard former President Obama's memo. This could mean higher interest rates for you, but it shouldn't affect you unless you have a specific FFEL loan. Check and see if you are not sure.
Yes. There is, but they are similar.
Debt Consolidation is when you take out a new loan to cover the balances of your other loans. This simplifies the repayment process because you have one payment to make instead of a bunch. But, it will more than likely lengthen the repayment time, thus increasing overall interest payments.
Loan Refinancing is when you take out a new loan to repay existing loans, but you have the added benefit of getting a lower interest rate (if lower rates are available). This can simplify your repayment strategy and possibly lower your repayment period or amount.
There are a lot of variables when it comes to Student Loan consolidation that only you can answer. But, in general, doing a Federal Direct Loan consolidation could be a great option for you if the following are true:
If you are unfamiliar with exactly what type of federal student loans you have, you should check. Federal loan consolidation is free through StudentLoans.gov. So don't believe any company that says you need to use them and pay them service fees.
Student Loan Refinancing has proven to be an excellent option for many graduates and former students. The key point when looking to consolidate student loans or refinance them is: “What will the advantage be for you?” Logically, if there is no advantage, what is the point?
Depending on your financial situation, you may feel stuck. Maybe you are struggling to find employment and your credit isn't the best. You can still come up with a workable plan to pay off your student loans without consolidation or refinancing. Treat your student loans like any other debt and focus your energy on knocking them out as quickly as you can.
I've made a tool that will give you your own personalized Student Loan debt payoff plan! Click HERE if you're interested.
Our debt payoff plan allows you to put in all your Student loans (and any other debts), and see a debt payoff schedule based on whether you'd like to tackle the lowest balance first or the highest interest rate first. So, you have the option to decide which debt payoff method is best for you.