Student Loan Consolidation Rates Drop - But There's a Catch

Student Loan Consolidation Rates Drop - But There's a Catch

What if there was a way to lower your monthly student loan payment even more than the newest iteration of income-based repayment plans? 

There is! And it’s called student loan consolidation, also known as refinancing. According to the Department of Education’s official statistics, over 25% of federal student loan borrowers are currently in default or deferment and don’t even realize it.

Federal Loans

If you can consolidate your federal loans into one single loan, you may be able to lower your monthly payments and enjoy other benefits. Student loan rates are determined by variables like your credit score, how much debt you have, and how long you’ve been in school. 

The best student loan refinancing comes with variable rates that move up or down based on those factors. A variable-rate doesn’t always mean high interest; it just means there are factors beyond your control that will change how much interest accrues on your debt each month. 

If you shop around for a low fixed rate, as well as a lock into some of these low variable rates now, you could save hundreds of dollars every year in interest payments.

Private Loans

In today’s ever-changing student loan landscape, you might be considering private student loan consolidation. But with so many different options—from consolidation to refinancing—where do you start? 

You could consult your bank or lender, but their interest rates will likely be higher than those of third-party consolidation companies like SoFi. 

If you’re looking for low-cost consolidation, look for a company that offers low rates (like SoFi) and also has flexible repayment options and generous borrower benefits. 

These extras can help make consolidating your debt easier on your wallet—and on your mind. You'll want to search around at different lenders to find out who has what type of repayment plan at what interest rate.

Benefits of Consolidating Student Loans

More than half of those with student loan debt (53%) would like to consolidate their loans into one monthly payment, according to research from Citizens Bank. 

The obvious benefit of consolidation is paying less interest. Although rates vary depending on lenders and borrowers' creditworthiness, annualized federal student loan consolidation rates currently average around 5%. 

Depending on where you live, it might also be easier to qualify for private student loan consolidation if your current rate is higher than that. Lower monthly payments: 

With fewer accounts comes one simple benefit: lower payments. For example, someone with four federal loans at 7% each will end up paying $295 per month.

How to Refinance Your Student Loans

You've heard of refinancing your mortgage, but did you know that refinancing your student loans is possible? In fact, many homebuyers refinance their mortgages in order to take advantage of lower interest rates. 

This same approach can be used with student loans. Applying for student loan refinancing means replacing an existing loan with a new one at lower interest rates (and/or better terms). 

Most borrowers choose to refinance because they want to consolidate their outstanding debts into one, new, low-interest loan. Student loan refinancing can be used in tandem with federal student loan consolidation or on its own.

Ways to Save Money on Interest Rates

Looking for ways to save money on your student loan interest rate? We’ve got answers. One of them is student loan refinancing. 

Student loan refinancing makes sense when you want a lower rate, you need additional cash, or you don’t qualify for federal repayment programs. 

Sometimes called student loan consolidation, it’s not an option for everyone but that doesn’t mean it isn’t useful! Remember: 

just because student loans can be consolidated doesn't mean they should be. You might pay more if you refinance now, rather than later or not at all! Here are five reasons why... [5 steps]

What To Look Out For When Refinancing

When it comes to refinancing your student loans, don't just go with anyone and expect results. Many student loans refinance companies are actually scams that take your money and provide no real service in return. 

One such scam was investigated by Pennsylvania Attorney General Kathleen Kane back in 2012 when they accused Mainsail Student Loans of tricking students into paying thousands of dollars for free government loans. 

If you're going to use a company to help with your student loan consolidation or refinancing, make sure they have reviews from real customers who can vouch for their experience, quality of service, ease of the process, and so on. That way you'll know if it's legit or not!

Advice for Repaying Loans and Moving Forward

If you’re struggling to make your student loan payments each month, there are ways to tackle that debt: You can go to student loans.

gov and run a repayment calculator to figure out how much you can reasonably afford to pay each month; you can also talk with your servicer or look into refinancing. 

Depending on your income, some federal loans (such as those from the William D. Ford Federal Direct Loan Program) come with affordable options for reduced interest rates and payments through Income-Based Repayment, Pay As You Earn, and Revised Pay As You Earn plans.