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Should I consolidate or refinance my student loans?

by Uneeb Khan

Consolidation combines the loans into a single monthly payment, which is made to a single servicer. If you have more than one student loan, with more than one servicer or company, consolidating your loans can make it easier to keep track of them.

There are two types of consolidation loans. The types available to you will depend on whether you have federal or private student loans .

Federal Direct Consolidation Loan

If your student loans are federal, you have the option of combining all or some of them into a federal Direct consolidation loan. This option is only available to consolidate federal student loans, not private ones.

Federal loan consolidation will not lower your interest rate.

The fixed interest rate for a Direct consolidation loan is the weighted average of the interest rates of the consolidated loans, rounded to the nearest one-eighth percentage point. Although consolidating your loans may slightly increase your interest rate, it will remain fixed, so your new payment amount will not change over time.

If you have federal loans issued within the “Federal Family

Education Loan Program”, FFEL, or Federal Family Education 모바일대출  Program, or the Perkins Loan program, you can consolidate them into a new Direct loan to qualify for the “Public Service Loan Forgiveness” o Public Service Loan Forgiveness Program (PSLF).

You can find more information about the type of loans you have on the Department of Education’s Student Aid  page . In it, you can access your federal student loan information.

Private Consolidation Loan

A consolidation loan, or student loan refinancing, allows you to combine some or all of your private student loans into a larger private consolidation loan through a private bank or lender.

If you are approved to refinance or consolidate your private student loans into a new private loan, the terms of your loan may allow you to lower your interest rate, lower your monthly payment amount, or release a co -signer on your student loan.

It is possible to consolidate federal or private student loans into a private consolidation loan. However, consolidating federal student loans into a private one carries risks.

You should weigh the risks and benefits of refinancing your federal student loan into a private one as this removes some of the following protections and benefits.

Find out if you’re switching from a fixed-rate loan to a variable-rate loan.

 Most federal loans are fixed-rate, meaning you never have to worry about your interest rate or monthly payments going up if market interest rates rise in the future. If you switch to a variable-rate private loan, the interest rate could rise above the original fixed rate, and your payment amount could increase.

You will no longer qualify for certain programs or reimbursement plans. Federal student loans provide options for struggling borrowers, including income-driven repayment plans  , IDRs. If you consolidate with a private lender, you will lose the rights you have under the federal student loan program, including access to deferment , deferment , cancellation, and affordable repayment options .

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