If you’re wondering how to consolidate student loans so you never have to repay them, consider a few options. Consolidation allows you to combine all of your federal student loans into one payment each month. This makes it easier to manage your student loans since there’s only one bill to pay and the due date is always the same. It also gives you better access to the money you need to make your payments each month.
Private loans offer some advantages in consolidating your student loan balances. One is federal student loan forgiveness programs. If you qualify, federal student loan forgiveness programs will reduce or eliminate your overall interest on your federal debts. For most people, this is a significant amount because federal debt consolidation programs cost several thousand dollars, on average.
Private student loans don’t offer federal student loan forgiveness, however. If you qualify, federal loan forgiveness will reduce your interest on the balance but not the principal balance. You can’t use the savings to reduce your monthly payments. You also may not be able to defer your payments. You may still have to pay taxes on the forgiven amount, although this depends on the form in which you received the consolidation loan.
When you consolidate private student loans, you usually don’t get government forgiveness. For most people, the only savings they get from a private loan consolidation is the reduction of their monthly payments. They have to start paying the new amount immediately. A grace period usually applies before the new payment begins, so you won’t know how much you’ll owe until at least the third day after you make the changes.
Once you know how to consolidate student loans, it’s time to decide how to go about the repayment process. You can either pay the new balance each month and distribute the various student loans as you deem best, or you can make one large payment at the beginning of each year and deal with all of the lenders. You can also defer your payments until the grace period is up, at which time you will have to start paying back the amounts you deferred. This will be expensive, especially if you are just starting out, so look for a repayment plan that will fit your budget.
You may not be able to get a lower interest rate when you consolidate federal student loans, unless you take advantage of federal consolidation loans’ offers to extend your loan term. The federal government doesn’t offer any low interest rates when students are enrolled in subsidized and unsubsidized loans. You can, however, still take advantage of the lower interest rates on some private lender loans when you consolidate. Talk to your private lender before you consolidate to see what kind of loan programs they offer that can help you obtain a lower interest rate.
If you have a lot of student loan debt, it can be helpful to work with a student loan attorney or adviser who can help you determine which private lender offers the best loan repayment plan. If you aren’t sure what sort of payment plan to use, you can ask your federal student loan servicer for help. Your service is the person who will be handling repayment for you, so they can give you helpful advice.
You should also keep in mind that you can consolidate federal student loan loans and private loans at any time, whether you’re in school unemployed or have other financial obligations. You may want to do this sooner rather than later to make paying off your debt easier. Talk to your loan servicer to find out how you can consolidate student loan refinancing and what the associated fees might be. Remember, if you have poor credit, private lenders won’t be willing to refinance you to a federal loan. However, federal loans are much easier to qualify for if you have good credit. So, talk to your loan servicer and your federal loans counselor about consolidation options to make paying off your student loans as easy as possible.