Refinancing education loans can be so easy and appealing that many borrowers tend to miss some important facts about it. What you don't know can sometimes save you a lot of money, time, and stress. Here are a few little-known facts that can save you a lot of money when you refinance your student loans.
Consolidation loans have a fixed interest rate instead of an interest rate that changes over time.
Most student loans have a variable interest rate, which means that if interest rates go up, as they did on July 1, 2006, it can make a big difference in how much you have to pay each month. With a fixed interest rate, both the monthly payments and the total balance to be paid off are the same. Some student loans, like the Perkins Loan and the Health Professionals Student Loan (HPSL), have a fixed interest rate. Before you consolidate, it's important to figure out if rolling these kinds of loans into the consolidation will help you pay them off faster.
Different consolidation lenders offer a wide range of ways to save money.
When it comes to consolidating student loans, what makes one lender different from another is the kinds of perks they offer. Lender incentives can make monthly payments and the total amount owed over the life of the loan much lower. Many lenders offer discounts for auto-debit payments, but the discounts are rarely more than 0.25%. After 36 months of on-time payments, the interest rate will go down by 1% as a standard incentive. Look for a lender that goes above and beyond these standards when you're looking to consolidate your student loans. ScholarPoint, for example, offers a.50% interest rate discount for auto-debit and a 1% interest rate discount after only 24 months, which is a full year earlier than what is usually offered.
If you want to consolidate your student loans, they must be paid up to date.
If you're behind on your loan payments, you'll need to get caught up before you can refinance. Once you refinance, your monthly payments will probably be much lower, making it easier on your budget.
When refinancing, private education loans and federal education loans cannot be put together.
While the government gives out federal student loans, private student
Independent lenders are the ones who give out loans, which tend to have a higher interest rate. Those who have both types of student loans will need to get 2 different consolidation loans. It is best to start by consolidating your federal education loans and then move on to your private education loans. You can, however, put both subsidised and unsubsidized federal loans into one loan. They have to be kept track of separately, but a good lender will do this for you.
When you consolidate, you have to start over with your deferment and forbearance limits.
One of the best things about student loans is that they let students put their loans on "deferment" or "forbearance" when they are having trouble with their careers. When you refinance, it's like getting a whole new loan, so your limits on deferment and forbearance are reset.
When you consolidate during the grace period after graduation, you can lock in the best rate.
During the grace period, which lasts for six months after graduation, interest rates are 0.60 percent lower than after the grace period, when loans become due. By doing a debt consolidation before the grace period ends, you can lock in this much lower interest rate. Start the consolidation process as soon as possible after graduation to make sure there is enough time for everything. You can choose to have your new consolidated loan start when your grace period ends so that you can get both benefits.
Students can no longer consolidate their loans again.
Borrowers have been able to change their education loans for a long time if they were unhappy with their lender or found a better deal elsewhere. As part of the changes to student loans made by the Federal government on July 1, 2006, borrowers now have to go through a lot of trouble to find a new lender for loans that have already been consolidated. If you don't want to take out new loans that would let you consolidate again, it's best to look around and find a lender you'll be happy with, since you can only consolidate once.
One of the easiest ways to lower your monthly bills and make paying back your college education more affordable is to refinance your education loans. Keeping in mind these little-known facts can save you a lot of money and make the process of consolidating your student loans easy and smooth.
