How to Consolidate or Refinance Your Student Loans

Ever wonder if you could find an easier way to pay off your student loans? There are actually a few ways you can simplify the process, including refinancing and consolidation. We spoke with Bustle this week about refinancing. We’re also going to break down the two processes for you and help you decide whether it’s right for you. 

What is refinancing? 
Refinancing is the process of combining your private and public student loans through a private lender, who pays off those loans. You then pay off that private lender, who issues new loan terms. It can decrease your interest rate or lower your monthly payments, or both. 

What is consolidation? 
Consolidation is a process similar to refinancing, but it does not include new loan terms. You will have only one monthly payment, rather than several, but your interest rate and monthly payments will not change. Instead, the interest rate is calculated by taking a weighted average of all of your loans. 

Should I do it? 
Like all things personal finance-related, refinancing and consolidating your student loans depends on several things, including your credit score, the size of your loans and your lenders. There are two major things to consider when deciding whether to refinance or consolidate: your APR and the tax status of the new loan. Use a calculator like this one to find what your new interest rate (or APR) will be. It could be lower than your current rate, but it could also be higher, even though your monthly payments end up lower. Following that, determine whether your new loan would be considered a student loan. It depends on the lender, so check with them. If it isn’t considered a student loan, you cannot claim it on your taxes, which could eventually mean less cash for you. 

How can I get started? 
Start by calculating that APR and make sure you know the terms of the potential new loan. Some have a fixed APR, while others have a variable one that changes year to year. Student Loan Here has a fantastic list of some of the best lenders for refinancing here. You can compare everything from interest rates to whether they do a credit check on the website. The signup process shouldn’t take long, maybe 20 minutes, but make sure the choice is right for you before you do it. 

What now? 
Keep paying off those loans! If you’re excited by the process of paying your loans off more quickly, begin looking for ways to cut other expenses or start looking into a side hustle.

On a more macro scale, we need to understand that higher education should not cost as much as it does. Support candidates who run on platforms that alter the tax treatment of student loan aid, and if you have extra cash on hand, consider contributing to a scholarship fund for low-income students. 

- Alicia McElhaney / She Spends Issue #22

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