Student Loan Consolidation: Is it the Right Choice for You?
With the ballooning costs of higher education in recent years, more and more young adults are graduating with significant amounts of student loans. This type of debt can be acquired in varying amounts, for different education levels, and on quite unique terms. But regardless of what your student loans look like, chances are they can be summarized quite simply as a burden.
When young professionals are moving into the workforce, carrying student loan debt from multiple entities totaling significant amounts of money can really drag them down. Obligations to student loans can affect your credit, minimize the amount you can save or put towards retirements, and all-around stunt your financial health.
If you feel like you’re drowning, there are multiple options to consider. One tool you may need to investigate is student loan consolidation.
Defining Student Loan Consolidation
When you engage your loans in student debt consolidation, it works just as you would expect by the name. You may be holding federal student loan obligations with their own interest rates, payment terms, and other considerations. Put simply, student loan consolidation takes all those different loans and combines them into a single federal loan with one payment schedule, rate, and plan. This process eliminates the need to submit multiple monthly payments, is advisable for your credit, and can streamline and expedite your process of paying the loan obligations back.
What Does a Consolidated Loan Look Like?
When you get your new consolidated loan, the interest rate you are charged will be a weighted average of the prior loan rates. Your monthly amount owed may actually go down, but don’t be fooled. It will merely result from some part of your student debt obligation being paid back over a longer time, and thus you will end up paying more interest in the end. That might be advantageous for you in the short term, but be sure to consider what you can afford now vs. what your long term payback obligations would be.
In the end, student loan consolidation in this way is unlikely to save you money, but it can still be helpful in that way to manage on a month to month basis.
What About Private Student Loans?
The aforementioned student loan consolidation applies just to federal student loans and is accomplished through the U.S. Department of Education. If you also have private student loan debts to non-federal lenders, you may want these consolidated advantages. The same process exists for private loans, but it’s known as student loan refinancing, and it’s unavailable for federal loans. With student loan refinancing, you’re taking multiple private loans and having a single lender refinance your loans under a single new term. This differs from federal loan consolidation because the private lenders will have to pull your credit to determine whether you qualify. If your credit is good enough, it actually may end up with you having reduced interest rates and saving you money in the long run. But this process also comes with application fees and other upfront costs not associated with student loan consolidation.
Is Student Loan Consolidation Right for Me?
Everyone’s situation is different, so the right move for you will depend on the nature of your loans, what’s most challenging about them, and what your financial situation is outside of those loans. The best advice will come personalized based on your needs and goals, so it’s best to get in touch with financial experts to explore your options and see if you should discover student loan consolidation as an opportunity for you.
At Tobin & Collins, we are trusted by our clients to ensure they are on the right financial and debt repayment track, and we would love to do the same for you. Get in touch with us today to learn more.