Consolidating student loans with different interest rates
Consolidating student loans with different interest rates - Live free chat mature womens
What’s more, consolidation typically results in the borrower paying more in total interest because consolidated loans are generally stretched out over a longer period, says Jessica Ferastoaru, a student loan counselor with Take Charge America. Consolidation usually gives you more repayment options, but it can limit them too.
If you have private debt and you’re offered a lower rate and better terms through refinancing with a reputable lender, that’s worth pursuing.
For example, if you have Parent PLUS loans for a child and individual loans that you took out for your own education, you shouldn’t consolidate them, says Adam Minsky, a lawyer in Boston who specializes in student debt.
That’s because Parent PLUS loans are not eligible for several types of income-driven repayment, and they carry that restriction with them in a consolidation, causing your student loans to lose those options, as well. Consolidation can affect your eligibility for forgiveness.
One of the main points of confusion is that the word consolidation is often used to mean EITHER consolidation OR refinancing.
But those are two very different things with very different pros and cons.
College students can take out new loans each year they’re in school, so by the time graduation comes, it’s common to have half a dozen, or more, individual loans.
Each of them may have different terms, including interest rates.So, for a simplified example, if you have two loans, one for ,000 at 4% interest and one for ,000 at 6%, your consolidated loan will have a ,000 balance and a 4.7% interest rate.By combining your interest rates, you also lose the ability to employ a favorite tactic of financial planners for paying down debt: targeting the most expensive debt, the loan with the highest interest rate, first.Borrowers who graduated before 2010, when the government shifted to Direct Loans, for example, need to consolidate their loans to access the latest income-driven plan, Revised Pay As You Earn.Parent PLUS borrowers most consolidate their loans into the federal Direct Loan program if they want to enroll in the only earnings-based plan available to them, income-contingent repayment.Consolidating those loans into a single new one can simplify your payments, especially if your loans are with different loan servicers, the companies that oversee your payments.