If you’ve multiple loans or want to get a lower interest rate, student loan refinancing or consolidation might be for you! The process of consolidating and refinancing student loans is simple; most lenders have an application that takes under 30 minutes to fill. Read on to find out how to refinance or consolidate student loans!
Refinancing and Consolidating
The terms “refinancing” and “consolidation” are often used interchangeably. However, there are clear differences between the two. Both involve merging multiple loans into a single loan. The lender pays off your existing loan and gives you a new one in return. The reason a borrower would do this is to have one repayment instead of multiple repayments from different lenders.
Consolidation means merging several federal student loans. Department of Education loans are the only loans that qualify for consolidation. Keep in mind that you cannot exchange private loans for federal loans. If you have federal loans with multiple service providers, you can get one monthly payment by consolidating them. Also, consolidation can lower your monthly payment amount by extending the payment period. However, you will pay more interest over the life of the loan.
Refinancing is the consolidation of private student loans. There are many banks as well as other financial institutions that offer refinanced loans. Your chosen new lender pays off your loans in exchange for a single private loan. You often get a lower interest rate for refinancing. While federal loans can be merged with personal loans in a refinanced loan, you’ll lose the associated benefits.
How to Consolidate Student Loans
The Federal Student Loan Consolidation Application can be filled out online free of charge. You can consolidate federal student loans at any time after you leave school, graduate, or fall short of midterm enrollment.
Repayment of the newly consolidated loans begins 60 days after loan disbursement. Your credit servicer will remind you when it’s time to make payments. If you consolidate your loans while you are still within the grace period, you can request that your payment be deferred until the end of the grace period. Until you are in the grace period, continue to make regular payments on your loans until the consolidation loan is paid off.
There are certain requirements for federal student loan consolidation:
- The loans included in the consolidation must be in the process of repayment or a grace period
- A consolidation loan can only be reconsolidated if it is included in another qualifying loan
- To consolidate a delinquent loan, you must make three consecutive monthly payments before consolidating or agreeing to repay your new loan on an income-based repayment plan
- Loans recovered through garnishment are not eligible for consolidation until the order is lifted
Related: Best student loan repayment plans
How to Refinance Student Loans
The student loan refinance process differs depending on your chosen lender. Typically, the lender’s website offers online refinance applications. You must indicate which of your loans you wish to refinance.
The lender will verify your financial information and your credit history. Your financial history will determine the new interest rate you receive and whether you qualify for refinancing. You typically need a credit score within 600. If you don’t meet the eligibility requirements, you can apply with a co-signer who does.
Read the lender’s terms carefully and understand the repayment period to make sure it fits into your financial plan.
The process of refinancing or consolidating is simple and refinancing or consolidating offers the convenience of a single monthly payment. Plus, refinancing offers a lower interest rate on your student loan. If consolidation or refinancing is ideal for you, visit the lender’s website to begin your application.
Continue Reading: Student Loan Default: What It Is And How To Avoid It And How Long It Takes To Pay Off Student Loans
Checklist for Consolidating and Refinancing Loans
The first step in consolidating and refinancing your loans is to find a plan to transfer your loans. If you are considering refinancing, you will need to use a student loan market to find a new servicer. If you’re looking to consolidate, you should check your servicer’s current plans and talk to them to find out what you’re eligible for.
Your next step is to fully familiarize yourself with the terms of the plan you wish to upgrade to. Be sure you are well informed about the difference between fixed and variable interest rates. You must choose the option that suits you best.
When refinancing, be sure to find a qualified co-signer if your credit isn’t good enough.
Good luck with the process, and be sure to come back to our site if you have any more questions!
Other Resources
Remember that refinancing and consolidation aren’t your only option for changing your payment schedule. You may be eligible for an extended repayment plan, an income-based repayment plan, or a deferral of your loans. These can be great ways to reduce your monthly repayments. However, these options are generally only available for federal loans. If you’re considering converting federal loans to private loans, you might miss these opportunities, so be sure to research them before making your decision.
Above all, remember to track your payments to avoid late payments! Failure to repay a student loan forces you to pay more money and hurts your credit score. Good luck!
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