With student loan consolidation, you’ll be able to combine more than one federal student loan and turn it into one loan. By doing this, it will be a lot easier to handle your payments every month since you’ll no longer have to make multiple payments to various lenders.
Borrowers may hear about a number of different benefits when they consolidate their student loans. They may also learn three very specific myths about student loan consolidation that create massive confusion among borrowers and students alike.
To prevent making the wrong decision about consolidating your student loans, please learn these common myths and discover the truth.
1. Student Loan Refinancing & Student Loan Consolidation Are the Same
The truth of the matter is that student loan refinancing and student loan consolidation are two totally different ways to repay your loan.
When you consolidate your student loans, you are technically combining more than one federal loan and turning it into one loan. This simplifies the payment process for people that are tired of paying multiple loans every month. It also opens the door to access to possible forgiveness programs, and if you’re lucky you’ll end up with repayment plans that are much more favorable.
Refinancing student loans is when you actually apply for a brand-new loan. You’ll do this because you hope to get a lower interest rate than the one you’re currently paying. This will help you pay off one or more of your existing loans, and you’ll only have to focus on one loan at a lower interest rate.
With consolidation, private loans are not an option so you can only consolidate federal loans. If you’re looking to lower your interest rates on private loans, your best bet and really your only option is to look into student loan refinancing.
2. It’s Possible to Consolidate Federal Student Loans and Private Student Loans
We just learned that it wasn’t possible to consolidate private student loans. So it’s also going to be impossible to consolidate private and federal student loans into one loan. The system just doesn’t work that way.
Federal loan consolidation is a process offered by the government and it’s only available for federal student loans. If you choose to consolidate federal loans, they will calculate your interest rate based on the weighted average of the interest rate of all loans being consolidated.
As an example, if you have five student loans with various interest rates, the consolidation program will get an average of all five rates and that will be the interest rate of the new loan.
There are no available consolidation options for private student loans. When someone says they’re consolidating their private loans, they are making a mistake because they mean they’re refinancing their loans. With this method, you actually have to apply for a brand-new loan that you may or may not qualify for after your credit history is assessed.
According to Studentloansconsolidation.co, a website that talks about how to get a private student loan consolidation loan, “…the interest rate on the consolidated loan might be substantially lower, and the final payment can be reduced in a manner similar to the effect on your monthly payment after refinancing a mortgage or a car.”
3. Student Loan Consolidation Is Right for Everyone
In certain cases, consolidating your student loans might not be the best option. If you cannot get a better interest rate than the one you currently have, it’s not worth it to consolidate at this point. If you can find a better rate in the future, it might be worth it at that point.
Consider these student loan consolidation myths the next time you plan to consolidate your loans.