Video Discription |
You may have options if student loan payments are eating up too much of your monthly budget. But what are the implications of consolidation and refinancing?
Kevin Mahoney is the founder & CEO of Illumint, which offers fee-only financial guidance specifically for the millennial generation. For more info, check out illumintadvisors.com. You also can connect with Kevin on:
INSTAGRAM
http://instagram.com/illumint
FACEBOOK
https://www.facebook.com/illumintadvi...
TWITTER
https://twitter.com/illumintCEO
YOUTUBE
http://www.youtube.com/illumint
Video Transcript:
I’m outside the U.S. Department of Education today thinking about student loans, particularly the difference between loan consolidation and loan refinancing.
Perhaps you’ve had a moment where: you’ve finished grad school, the grace period on your loans is about to end, and you’re not pumped about how much of your budget those monthly loan payments will eat up. So let’s look at the differences between consolidation and refinancing, and see how each strategy may impact you.
Most often, the term “consolidation” applies to federal loans, while “refinancing” involves at least one prive loan.
Loan consolidation is the act of combining different loans into one single loan: one servicer, one payment. It’s important to note, though, that with federal student loan consolidation, your interest rate does not decrease.
Why consolidate then? Today, you’re most likely to do so in order to qualify for an income-based repayment plan. You also may consolidate in order to switch from variable interest rates to a single, fixed interest rate. Consolidation might help you to become better organized, but you’re now just as likely to be able to track different federal loans using the same account login.
Think carefully before you sign up for a loan consolidation that extends your loan term. Your monthly payments may decrease, but you ultimately could pay thousands of dollars more in interest. Consolidation also averages your existing interest rates to generate the new combined rate that you pay, which prevents you from eliminating your highest interest debt first.
For loan refinancing, you’re replacing one or more existing loans with a new, private loan that offers different terms, primarily a lower interest rate.
If you’re paying a high interest rate on private loans and you have a strong credit score, you’ll often realize pretty quickly that refinancing to a lower rate is a good move. The decision gets dicey, though, when federal loans become involved: you generally don’t want to refinance a federal loan with a private lender. If you do, you typically lose a number of protections and benefits that the government offers, such as income-driven repayment, deferment, and loan forgiveness. While many loan forgiveness programs aren’t perfect and present their own risks, you probably don’t want to abandon any significant credit you’ve earned with them.
Required Disclosure:
The information on this site is provided “as is” and without warranties of any kind either express or implied. To the fullest extent permissible pursuant to applicable laws, Illumint disclaims all warranties, express or implied, including, but not limited to, implied warranties of merchantability, non-infringement and suitability for a particular purpose. Illumint does not warrant that the information will be free from error. None of the information provided on this website is intended as investment, tax, accounting or legal advice, as an offer or solicitation of an offer to buy or sell, or as an endorsement of any company, security, fund, or other securities or non-securities offering. The information should not be relied upon for purposes of transacting securities or other investments. Your use of the information is at your sole risk. Under no circumstances shall Illumint be liable for any direct, indirect, special or consequential damages that result from the use of, or the inability to use, the materials in this site, even if Illumint or a Illumint authorized representative has been advised of the possibility of such damages. In no event shall Illumint have any liability to you for damages, losses and causes of action for accessing this site. Information on this website should not be considered a solicitation to buy, an offer to sell, or a recommendation of any security in any jurisdiction where such offer, solicitation, or recommendation would be unlawful or unauthorized. |