A Comparison between Refinancing Federal Student Loans & Consolidation.

Are you wondering whether you’ll repay your student loans or refinance them? In comparison, refinancing your loans can make things simpler for you. Let’s see the three main reasons for refinancing your loans as a better option.

1. Refinancing reduces the interest rate to decrease the entire cost.
2. Obtaining a new long-term loan can reduce the monthly payment. In addition, it’ll help you with living expenses and other debt obligations.
3. Refinancing gathers your student loan for you to pay for a single student loan each month.

The Process of Operation on Student Loan Refinancing

Refinancing student loans can help you collect all or some of the loans into a single new loan. The interest rate remains low, so you pay less with time. It can also reduce the monthly payment over a longer repayment term.

The Contrast between Student Loan Refinancing vs. Consolidation

The term “consolidation” combines the federal student loan and turns it into a new one with a new term. However, consolidating a student loan does not always offer a lower interest rate. Why? Because the average interest rates on the consolidating loans will be measured with the new rate.

Consolidating a student loan is not a financially-friendly option. However, you can have access to varying repayment plans on your income with it. In addition, you can also access specific loan forgiveness programs till parent PLUS loans are non-inclusive on consolidation.

1. Students can access federal and private loans on refinancing student loans. But they can access only federal loans on consolidation.
2. Students should meet particular credit criteria on a federal student loan. But, they don’t need to achieve the requirements for consolidation.
3. Both the loans – student loan refinancing and consolidation, can simplify repayment.
4. The consolidation loan will provide the weighted average of the original rates without reducing the interest rate. The interest rate on the refinance loan shall rely on the present credit score and the current loans.  

The uniqueness of student loan refinancing

You can obtain refinancing through credit unions, banks or other lenders who offer student loans. It helps you gather private and federal loans together into a new term and rate. Refinancing reduces the overall expenses through a repayment with a less interest rate. However, you should note that the present financial strengths will determine the interest rate on repayment.

Objectives behind refinancing student loans

In general, most people believe that refinancing is necessary for a reduced interest rate. Yet, there is a broader aspect of refinancing. First, you should choose the loans that pay for your physics assignment help to meet your objectives.

1. Paying less with a reduced interest rate.
2. Aiming to decrease the monthly payment amount.
3. Preferably make a single payment every month.

The purpose behind consolidating student loan

Consolidating a student loan involves combining different federal education loans into a single loan. The loan involves a single monthly payment rather than several payments. In addition, you can reduce your loans to access forgiveness programs or loan repayment plans.

If you wish to consolidate your federal education loans within a direct consolidation loan, you don’t have to pay any application fees.

Consolidating student loans – pros and cons

Do you want to consolidate your student loan? Then let’s see the pros and cons of consolidation –

Pros

1. Do you have to pay for different federal student loans toward various loan servicers? Consolidating your student loan can ease your loan repayment through a single loan with one monthly bill.
2. Your monthly payment can decrease with consolidation. It’ll expand your loan repayment period by close to 30 years.
3. Consolidating loans over Direct Loans might offer added options on PSLF (Public Service Loan Forgiveness) and income-driven repayment plans.
4. You can switch between variable-rate loans through a fixed rate of interest.

Cons

1. Consolidation increases the time period for loan repayment, increasing your payments and the interest.
2. On consolidating your loans, the outstanding interests on the loans shall become a portion of the principal balance in the consolidation loan. Therefore, the interest will accumulate over a higher principal balance which wouldn’t be the case if not consolidated.
3. Consolidation can deprive its owner of borrower benefits on their present loans like principal rebates, loan cancellation privileges, or interest rate discounts.
4. Loan consolidation can lose you credits on payments toward repayment plan forgiveness if you pay present loans within an income-powered repayment scheme.    

Are you worried about the effect of loan consolidation while reducing the amount payable for each month? Then, you can either choose forbearance or deferment as a short-term option or shift to the income-driven repayment plan for long-term payment.

However, you cannot remove the loans once combined within a Direct Consolidation Loan. This is because the consolidated loans do not exist since they get paid off.

When do you consolidate the loans?

The eligibility for consolidation applies during

• the post-graduation period
• leaving school or
• if the student leaves off during mid-way enrolment.

A Direct Consolidation Loan carries a fixed interest rate during the tenure of the loan. So, first, you can calculate the fixed rate with the average interest rates of the consolidated loans. Then, you round up the value to the closest one-eighth of one percent.

When can you initiate repayment?

You can repay a Direct Consolidation Loan within 60 days of the loan payment. The loan servicer shall inform on the due date for the first payment.

Conclusion

A federal student loan should meet particular credit criteria to reduce the interest rate and repayment. However, consolidation is a loan that simplifies compensation and does not require meeting specific credit criteria.    

Author Bio

Toby Gray is a loan officer of the Financial Market of London and works with MyAssignmenthelp.com. He also supports commerce students by offering them help with their engineering assignment help papers.