Student Loan Consolidation and Refinancing

Student Loan Consolidation and Refinancing

Reduce Your Student Loans

There are traditionally two refinancing options — student loan consolidation or student loan refinancing. Student loan consolidation is a government program that combines multiple federal student loans into a single loan. The borrower gets a new interest rate that is a weighted average of your prior loan rates. If your monthly payment decreases, it’s likely the result of lengthening the term, which can mean paying more interest over time. For these reasons, consolidation is generally not a money-saving option. Not to mention, consolidation is only an option for federal student loans, not private student loans.

Student Loan Refinancing

Student loan refinancing is when a private lender pays off your student loans so that you only owe a single loan to the private lender. This new loan will have new terms, including length of repayment and interest rate. Depending on those terms, refinancing can be a money-saving option, but typically the student must have a great credit score and income.

Unfortunately, consolidation and student loan refinancing only go so far. Neither option actually reduces the principal amount owed by a student. They can only offer savings on interest, if that. With the large amount of debt that many students are carrying, a reduction in interest will not have significant impact. A principal reduction will. The only option for getting a principal reduction on student loans is to obtain a student loan settlement or discharge. To explore these options, a student needs to consult with an attorney – these are legal options, not bank options. An experienced debt attorney like our attorneys at McCarthy Law, will negotiate with your lender to secure the reduction or discharge of your loans.