Pros and cons of consolidating student loans
Although interest rate is important, there is usually more to consider.” If you’re confident in the stability of your income, private student loan consolidation may offer the savings and flexibility you’re looking as you plan for your financial future.However, if you are consolidating because you’ve fallen on leaner times, the benefits of the Direct Consolidation Loan program may offer you more financial security.While there are a lot of benefits to be had from student loan consolidation or refinancing, there are still some potential drawbacks that you will want to consider before you move forward.People consolidate student loans for different reasons, so what worked best for your brother or your best friend may not be the right approach for you.However, their balance sheet has not changed at all.The amount of their liabilities is still the same,” Schrant advises.Hylland continues “If refinancing enables you to pay off higher interest debt, or save more into retirement accounts, it may be beneficial in the long run.” Is your goal a lower interest rate, a more manageable monthly payment, or freeing up cash for other purposes?
The first thing to consider is why you want to refinance or consolidate your student loans.If you extended your repayment term to help get you through financially challenging times, and later find yourself earning more, paying your debt off early can save you hundreds, even thousands of dollars over the life of your loan.This can help you achieve other goals, such as buying a home, saving for retirement, or saving for your children’s education. Check out our Student Loan Consolidation and Refinancing Calculator!Matt Hylland, financial planner with Hylland Capital Management states, “Refinancing student loans can be beneficial in a number of ways, depending on your goals.
Borrowers could refinance to lower their interest rate, pay off their loans sooner, or free up monthly cash flow.” Knowing what it is you want to achieve by refinancing or consolidating student loans will also help you weigh the pros and cons effectively.
However, if you refinance your federal loans with a private lender, you will lose the guaranteed benefits of the federal program.