Taking out loans to pay for your education seems to be inevitable for most students. Fortunately, there are many types of loans and repayment plans available, which gives you options for affordable payments. Still, about one of every six consumers with student loan debt are either in default or haven’t made a student loan payment in a year or longer. If your student loan payments are unmanageable, it may be a good idea to look into loan consolidation or refinancing.  

Consolidate or Refinance?

If you have several types of student loans, it can be difficult to keep track of the different payments to different lenders. To simplify things, you may decide to consolidate into one loan so that you just make one payment, usually totaling the same that you’ve been paying. This is the best plan for someone who is able to keep up with the payment amounts, but is just having trouble keeping due dates straight and is tired of the hassle of several bills.

Another, and usually better, option is to refinance your student loans. The reason to do this is to put all your loans into one large loan with a lower interest rate. This could mean your monthly payment goes down, you pay less in the long run, or both. When you originally took out your student loans, especially if that included private loans, your interest rate could be quite high. After you’ve worked for a while, your credit score could improve, which would qualify you for a better interest rate.

Why or Why Not?

One very important thing to consider before jumping into a refinance is to closely look at the repayment terms of your current and potential loans. If you have federal student loans, it may be best to stick with them, rather than switching to a private loan. Many federal loan borrowers qualify for income based repayment plans, and if they work in social/public service fields, they may even qualify for loan forgiveness. Government loans typically come with longer grace and repayment periods, as well as better deferment options than private loans.

Also take a look at the interest rates on the private loan you’re considering. It may have an initial low interest rate, but if the rate is variable, you could end up in a payment you can’t afford, without the benefits of federal loans. So even if you feel that your payments are high, having the flexibility that federal loans can provide when you aren’t able to make a payment may be reason to continue with your current loan.

Take Your Time

Financial decisions are obviously important, and there’s no need to jump into a new agreement that you aren’t comfortable with. Before making any changes to your student loans, be sure to read all the fine print and ask any questions you have. With all the available options, you will most likely be able to find a plan that will allow you to take care of your debt while enjoying the life you’re working so hard to build. 

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