Are you struggling to pay off your student loans due to high interest rates? Student loan consolidation may be able to help. This process is designed to reduce interest charges and loan balances fast.
Consolidation loans combine multiple sources of debt into one new balance and payment plan. Student loan consolidation and refinance programs both alleviate financial burdens associated with heavy student loan debt. Learn more about how to reduce your student loan debt through consolidation below.
The primary purpose of consolidating debt is to combine your loans into one, easy-to-manage monthly payment. Student loan consolidation is similar to credit card consolidation.
Both federal and private student loan consolidation programs are available. It is important to note that consolidation is different from refinancing. While these two options have some similarities, they also have numerous (and significant) differences.
Student loan consolidation programs combine multiple debts and monthly payments into a one loan, which means you will only be making one monthly payment instead of juggling several.
A student loan refinance, on the other hand, does not always incorporate multiple loans into one new loan program. The primary purpose of most refinancing loans is to lower the annual percentage rate (APR) on the loan.
While student loan consolidation can also lower your interest, the main goal is to convert multiple monthly payments into one convenient payment amount each month.
Most direct consolidation loans are types of unsecured loans, which do not require you to have collateral. Collateral is a type of item or asset, which typically has a value equal to or greater than the amount of your total loan plus interest.
An example of a secured loan is a mortgage; if a borrower stops paying, the lender has the right to take possession of the home (collateral).
Your credit (FICO) score plays a significant role when borrowing money, regardless of loan type. To obtain an unsecured loan, you typically need to have good-to-excellent credit.
Other types of unsecured loans include those that are used for personal purposes, such as dental expenses or purchasing new furniture for your home.
Without collateral to back up their funds, lenders take bigger risks when lending unsecured funds. This is why the interest rates on unsecured loans are often higher than those offered on secured loans.It is possible to consolidate and refinance student loans with either a secured or unsecured loan. However, federal and private student loans have different requirements. Continue to the next slide to learn more about the differences between federal and private student loan consolidation programs.
