A lot of college students end up taking out student loans, sometimes even multiple ones. Of course, that also means repaying those loans. Knowing how to consolidate and refinance student loans is important if you have borrowed money to finance your college education. Both of these processes can help take the stress out of dealing with your monthly payments. If done right, refinance can also help lower the cost of your loan considerably. But first, you must make sure that you are eligible.
Eligibility Requirements for Student Loan Consolidation and Refinancing
Eligibility requirements for student loan consolidation:
When you consolidate your loans, you are simply combining multiple loans into one loan to make it easier for you to handle the monthly payments. The interest rate of your consolidated loan will be the weighted interest of your individual loans. That means you won’t pay more in accrued interest. In other words, your new interest rate is the average of your previous interest rates. The only requirement is having more than one loan.
Eligibility requirements for student loan refinancing:
When you refinance, you are essentially giving up your old loan and replacing it with a new loan with a completely different rate of interest. This new interest rate could be higher or lower than your existing student loans. Having a strong credit score, being employed, earning a high income, having limited or no debt, and a relatively low debt-to-income ratio can make you eligible for a lower rate of interest on your refinanced loan. However, refinancing means giving up any benefits that your loans had.
Should You Consolidate?
While consolidation and refinancing can help many students manage their loans, or even save money on them, it’s not the right move for everyone. If you have multiple student loans and want to change your monthly repayment amount, or just want to have all your loans combined into one, consider consolidating. Make sure that you need to consolidate. If you’re making your payments just fine, don’t consolidate just because you can.
Should You Refinance?
Ideally, you should wait until you have a good credit score, but not so long that you’re nearing the end of your loan’s lifespan. If you’re struggling to make or keep track of payments, want to shorten the life of your loan, or change your loan terms, then this may be right for you.
Keep in mind, for both consolidation and refinancing, you’re changing the terms of the loans. If you consolidate or refinance your federal student loans, you may lose the benefits that come with those loans. Of course, if you’re having trouble keeping up with monthly payments or the interest rate is too high, consider consolidating or refinancing. You don’t want to end up defaulting on your student loans, which means missing your repayments and not repaying after a certain amount of time. Defaulting can put you in a lot of financial trouble. If consolidating or refinancing can keep you from defaulting, then definitely consider those options.