Student loan refinance and consolidation are great solutions for students looking for more effective ways to manage their student loan payments. Both of these options work very well, but only if you go about it the right way. Unfortunately, many students who have heard about refinance and consolidation rush into choosing one of these options without giving it enough thought.
These are some of the more common refinance / consolidation mistakes that students make every year. Avoid these and you stand a better chance of wiping out your debt faster.
Choosing To Refinance / Consolidate Because It Worked Well For A Friend
Even if refinancing or consolidation work for 90% of your friends, it does not mean it is the best solution for you. Sure, it’s good to get advice and recommendations from friends, but you must realize that everyone has their own unique priorities, financial goals, and lifestyle preferences. Listen to what your friends have to say but before you decide to follow in their footsteps, give some thought to whether refinancing or consolidating your loans will work for you in the same way.
For example, your friends may have decided to refinance in order to lower their monthly payments, even if it means extending the life of the loan. However, if you can afford to make the monthly payments, refinancing may not be the right solution for you. Why pay more unnecessarily? Or if you are highly organized and not particularly stressed at having to make multiple monthly payments, consolidation may not have much appeal for you.
Think about your unique circumstances and look for a solution that works best for you, not one that works well for your friends.
Not Exploring All Available Debt Management Options
Refinance and consolidation may be among the more popular solutions for student borrowers looking to manage their debt, but they certainly aren’t the only solutions out there. There are a few cons to choosing either refinance or consolidation—perhaps the biggest being losing any federal perks when you refinance or consolidate federal loans.
It is important to explore all other available solutions before you can say with certainty that refinance or consolidation is the best one for your situation. Every solution has its own benefits and downsides. You must weigh the pros and cons of each carefully before you decide on the option that will work best for your circumstances.
Signing Up With The First Lender You Find
So you’ve explored all available options and decided that refinancing or consolidation is the best option for you. Your next step now is to look for a lender to work with. One mistake many student borrowers make is signing up with the first lender they talk to, simply because they want to get it over and done with and also the lender’s terms sound really attractive.
When it comes to student loan consolidation or refinancing, comparison shopping is key. Every lender may offer completely different deals, right from different rates of interest to different payment terms and even different penalties for delayed payments. If you sign up with the first lender you find, you could very well have missed out on a better deal had you only checked around a little more.
You absolutely must check the terms and conditions, as well as the interest rates with different lenders before choosing one that seems right for you. The good news is you can compare lenders online—including right here on College Raptor for FREE!—so there is absolutely no excuse for missing out on this step. After you’ve done your online comparison, you can shortlist a few that seem like the best options and visit these personally.
When comparing lenders, also pay attention to the way you are treated. Did the lender go out of their way to answer your questions and put you at ease or were they brusque or rude? If they are reluctant to give you the time of day when you are not yet their customer, think about how much worse they are likely to be after they managed to ‘hook’ you in.
Refinancing / Consolidating All Your Student Loans
When you refinance / consolidate any student loan, the refinanced or consolidated loan is treated as a new loan. This means you lose all the benefits associated with the original loan. This may not be in your best interest, especially if there are any associated benefits that you may want to take in the future.
If you decide to refinance or consolidate your existing student loans, you must make strategic decisions, which will benefit you both in the short and long terms. Go through the terms, conditions and benefits associated with each loan carefully and weigh the merits of each loan before deciding which ones to refinance/consolidate and which to leave as is. You may end up deciding to refinance or consolidate all of your loans but when you go through this process, you are less likely to make a wrong decision.
Relinquishing Federal Student Loan Protection Unknowingly
This is one of the more common mistakes many student borrowers make. They do not read the fine print in detail and only realize that they have forfeited their federal student loan protection after they have refinanced or consolidated their loans. By then it is too late.
Refinance and consolidation are not the right solutions for you if you are working towards federal loan forgiveness. Instead, you must explore other ways to manage your loans. One such viable alternative is signing up for an Income Based Repayment plan. With and Income Based repayment plan your monthly payment is calculated as a percentage of your income. This ensures that you will be able to meet your financial commitments every month and lowers the risk of delays or default. More importantly, it allows you to maintain all benefits and protections associated with the loan.