Consolidating your debt good idea
There are two types of student loan consolidation: federal and private.
Private consolidation is often referred to as refinancing.
When you consolidate federal loans, your new fixed interest rate will be the weighted average of your previous rates, rounded up to the next ⅛ of 1%.
So, for instance: If the average comes to 6.15%, your new interest rate will be 6.25%.
There are major benefits and drawbacks of federal consolidation; it’s important to understand both because consolidation can’t be undone.
Private student loan consolidation, or refinancing, means replacing multiple student loans — private, federal or a combination of the two — with a single, new, private loan.
You’ll save money if your new loan has a lower interest rate.
Your financial history — including your credit score, income, job history and educational background — will dictate your new interest rate when you refinance.
“Debt consolidation” is a general term, used widely by different people to mean different strategies for resolving debt.
These processes are often confused, but they’re very different.
Here’s how: » SIGN UP: Get a free plan to ditch your debt Federal student loan consolidation basics How to consolidate federal student loans Student loan refinancing basics Compare student loan refinance lenders When you consolidate federal loans, the government pays them off and replaces them with a direct consolidation loan.
If you’re a parent with PLUS loans and you also have other federal student loans, you may want to consolidate your PLUS loans in a separate consolidation loan; consolidating them with your other federal loans will make that consolidation loan ineligible for all income-driven repayment plans except income-contingent repayment.
If you have Perkins loans, think twice before consolidating them; you’ll lose access to Perkins loan cancellation if you do.
After you review, sign and submit your application, continue making payments on your existing federal loans until your application has been processed.