What you May Not Know about Consolidating Student Loans
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What You May Not Know About Consolidating Student Loans
Refinancing student loans can be enticingly simple, yet many borrowers often overlook important details. Understanding these can save you money, time, and frustration. Here are some key insights that can help you make the most of consolidating your student loans.
Fixed vs. Variable Interest Rates
Most student loans have variable interest rates, meaning your monthly payments can fluctuate with market changes. However, consolidation loans offer fixed interest rates, stabilizing your payments over time. Before consolidating, consider the benefits of fixed loans like the Perkins Loan or Health Professionals Student Loan.
Money-Saving Incentives From Lenders
Different lenders offer various incentives that can significantly lower your payments and total debt. Commonly, lenders provide a 0.25% interest rate reduction for auto-debit payments. Some, like ScholarPoint, offer even better deals, such as a 0.50% discount for auto-debit and a 1% reduction after 24 on-time payments instead of the typical 36.
Current Loans Needed for Consolidation
To consolidate, your loans must be current. Once caught up, refinancing can reduce your monthly payments, offering relief to your budget.
Federal vs. Private Loans
Federal loans, provided by the government, cannot be combined with private loans from independent lenders. You'll need separate consolidation loans for each. Prioritize consolidating federal loans, then move to private ones. Consolidating federal subsidized and unsubsidized loans together is possible, though they must be tracked separately, a task best left to quality lenders.
Resetting Deferment and Forbearance
Consolidating essentially means obtaining a new loan, which resets your deferment and forbearance limits. These are crucial during challenging times as you build your career.
Locking in the Lowest Rate
Consolidating during the post-graduation grace period (six months after graduation) can secure you a lower interest rate, typically 0.60% less. Start the process soon after graduating to ensure it completes before the grace period ends, and specify that your loan begins after the grace period.
Restrictions on Reconsolidation
Previously, you could reconsolidate if you found a better deal, but now restrictions limit this option. As per the government's July 1st, 2006 changes, it's vital to choose a reliable lender initially since you may only have one chance to consolidate.
Consolidating student loans is a straightforward way to reduce monthly expenses and manage college debt. By keeping these insights in mind, you can streamline the process and maximize your savings.
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