Myth 2: The consolidation procedure is the very same for both federal and personal student loans.
Fact: Federal loan consolidation is various from private loan consolidation.
Federal loan consolidation is a government process, while private loan consolidation happens through personal loan providers. If you have both federal and private loans, you may desire to combine your federal loans together and your personal loans together, however it’s rarely advised to combine them all into one loan.
To consolidate your federal student loans, useget a federal Direct Consolidation loan on the Federal Student Supplement site. Bear in mind that federal loan consolidation will not usually lower your rate of interest. Direct Consolidation loan rate of interest are fixed, and are calculated by taking a weighted average of the rate of interest of the loans you’re consolidating.
Unlike federal loan consolidation, personal loan consolidation includes usingobtaining a new loan. Your prospective lenders will assess you mostly based on your credit history and, if you certify, make you an offer.
Some loan providers will combine only personal loans, while others– consisting of the loan providers taking part in the refinancing market Credible– will combine both federal and personal loans. Through Trustworthy, NerdWallet’s partner, you can use to several lenders by filling out a single form. Click on the button below to obtain begun.
Misconception 3: Consolidating your student loans is a no-brainer.
Fact: Student loan consolidation isn’t right for everybody.
Federal student loan consolidation sounds fantastic: You go from managing multiple rate of interest, terms and loan servicers to having one regular monthly payment. But consolidation isn’t for everyone, states Rick Ross, co-founder of the consulting company College Financing Group.
Federal loan consolidation can be useful if you need to do it to access a payment option. For instance, a lot of income-driven repayment strategies and forgiveness programs need that debtors have a federal Direct loan. If you have a loan from the Federal Household Education Loan program, you’ll have to change to a Direct Consolidation loan to access those choices.
However consolidating your student loans can also trigger you to pay more interest in time. Federal Direct Consolidation loan term lengths range from 10 to Thirty Years, depending upon your loan balance. The bigger your balance, the longer your term will be. While a longer term will decrease your monthly payments, it will increase the quantity of interest you’ll pay.
Still, even if you get a Direct Consolidation loan with a long term, there’s no penalty for paying it off early. You need to intend to settle your loans as quick as possible to conserve the most in interest.
Misconception 4: You can refinance federal student loans through the federal government.
Fact: Only private loan providers provide student loan refinancing.
You can refinance both federal and personal student loans, however just through private loan providers. Although it issues student loans, the federal government does not offer student loan refinancing. Some states have actually produced their own refinancing programs, however even those are gone through private lenders.
That implies that no matter which path you go, if you refinance a federal student loan, it will become a private loan. You’ll lose the positive aspects that federal loans offer, including income-driven payment plans, forgiveness programs, and deferment and forbearance.
Misconception 5: Federal student loan consolidation expenses cash.
Fact: Combining your federal student loans is free– you should not pay a third-party business to do it for you.
Federal student loan consolidation is totally totally free through the federal government. However there are business that try to take advantage of the convoluted consolidation process by charging for it. That’s a red flag, Yu says.
To avoid getting included with a crooked student loan consolidation business, do not give out your Federal Student Help (FSA) ID, and don’t send your loan payments to a third-party company. For more detailsFor more details, read about 4 ways to find a student loan scam.
- You can combine your federal student loans through the government by filling out a complimentary application for a Direct Consolidation loan.
- You can refinance your federal student loans, however not through the federal government. You’ll need to go through a personal lender, and you’ll lose on federal loan benefits, including income-driven repayment.
- For personal student loans, consolidation and refinancing are basically the exact same thing. Estimate just how much you could conserve by refinancing through Trustworthy by completing the calculator below.
Teddy Nykiel is a personnel writer at NerdWallet, an individual financing site. Email: email@example.com. Twitter: @teddynykiel.
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