Consolidating federal student loans lower interest rate
Once you leave the federal program, you can’t return and are no longer eligible for one of its income-driven repayment plans.Private consolidation is a completely different story, though.So, for a simplified example, if you have two loans, one for ,000 at 4% interest and one for ,000 at 6%, your consolidated loan will have a ,000 balance and a 4.7% interest rate.By combining your interest rates, you also lose the ability to employ a favorite tactic of financial planners for paying down debt: targeting the most expensive debt, the loan with the highest interest rate, first.But that hasn’t been the case for the past decade, since the government stopped issuing student loans with variable rates.If you consolidate your loans now, your new rate will be based on a weighted average of all your loans’ interest rates.Borrowers sometimes use the terms “consolidate” and “refinance” interchangeably when talking about their federal loans. You can consolidate but not refinance your federal loans within the federal system—to refinance, you have to go to a private lender.Consumer advocates caution that there’s a serious downside to moving to a private lender, even though you might get a slightly lower interest rate.
It can also be a way to get into repayment plans you otherwise wouldn’t be eligible for.Read the other posts in the series here—and get all the info you need to make intelligent decisions about your student loans.And while you’re at it, check out So Fi’s new Student Loan Debt Navigator tool to assess your student loan repayment options.This option doesn’t save you any money, but there are still a few potential benefits: 1.Fewer bills and payments to keep track of each month. The ability to switch out older, variable rate federal loans for one fixed rate loan, which could protect you from having to pay higher rates in the future if interest rates go up.NEWSLETTER: COLLEGE_PLANNERSign up for COLLEGE_PLANNER and more View Sample 1. One of the myths of consolidation is that it makes your debt less expensive by lowering your interest rate.