The average student debt is at an all-time high in America, but student loan consolidation can be helpful for managing these payments. There are two main types of consolidation available for students: federal and private. Federal student loan consolidation is offered through the Department of Education while private student loan consolidation is often called refinancing.
There are benefits and disadvantages to both federal and private that you should consider before deciding which consolidation option is best for your current financial situation.
Consolidating a private loan, also referred to as refinancing, is when you replace multiple student loans with a single loan offered through a private lender. Private, federal, or a combination of the two types may be consolidated into a private refinancing option. This is beneficial because you will end up saving money on the new loan if you receive a lower interest rate.
If you want to secure a direct consolidation loan from a private lender, they will need to investigate your financial history to determine your new interest rate. This includes information such as your credit score, income, educational background, and job history. Typically, you will need a minimum credit score in the high 600s to qualify for private student loan consolidation rates ranging from 2% to over 9%.
You may want to consider getting a [private loan consolidation if you have existing private student loans, a good or excellent credit score of 690 or higher, and stable employment. If those qualities do not apply to you, you may want to consolidate and refinance your student loans with a co-signer who meets those characteristics.
However, there are some disadvantages to refinancing your federal student loans. For example, you will lose certain consumer protections that are offered only to federal student loans. One of these protections is the option to tie payments to income and opportunities for loan forgiveness.
The main purpose of using student loan consolidation services is to organize all your loans into a single payment and to secure a lower interest rate based on your financial history. With a private loan consolidation from a lending institution, you can consolidate both federal and private loans.
Note: You can use a consolidation calculator to compare the student loan consolidation rates you will pay under different refinancing options.
On the other hand, federal loan consolidations can only be used to consolidate federal student loans. Keep reading to learn more about receiving federal student loan consolidations and the many benefits of the process.
By Admin –