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If you graduated from the college with the help of financial aid, you might be bogged down with multiple loans. Managing payments of multiple loans is will surely create a panic situation. The simple and easy way to manage student loan debt and pay it off sooner, consider student loan refinancing and consolidation.
Refinancing, Consolidation are often used interchangeably. There is a very common misconception regarding what exactly student loan consolidation and student loan refinancing are, how they differ from each other, and which is the best option for borrower to lessen the burden of his or her student loan.
Borrowers are not able to take choose the right option as they are often confused between refinancing and consolidating.
Even though they can serve a similar purpose, consolidation and refinancing are not the same.
What exactly is student loan consolidation?
Consolidating is exactly what it sounds like: condensing multiple loans offers into one single loan. A student loan consolidation combines all federal loans into one loan for free. Managing multiple federal student loans is a headache. Chances to miss out bill increases especially when you receive lots of statements every month.
The loan management can be simplified by student loan consolidation. Merging your federal loans into one single loan can save you a lot of trouble. You will have to deal with only one monthly statement, one due date, and one set of loan terms, which usually consists of a low, fixed interest rate.
Federal Government offers federal student loan consolidation, and it limits to federal student loans, not private loans. If you owe both federal and private student loans, federal government does not consolidate in that case.
That doesn’t mean you are left with no option to simply and combine your private and federal loans into one loan. Yes, it is still possible but instead of federal consolidation, you have to opt for refinancing your loans and that is done by private lender, such as bank or credit union.
How is refinancing different?
Refinancing is like applying for a new loan to pay off your existing loans. This is an effective move if you owe multiple private loans with variable interest rate and want a fixed interest rate that saves you from rate hikes in near future and in turn saves your money. Private loan refinancing is done by private lender like bank and credit unions.
Difference between refinancing and consolidating
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