Does consolidating student loans affect credit score
Student loan consolidation is different from student loan refinancing, but many people use the terms interchangeably.
Student Loan Consolidation: This is a free program to combine your Federal student loans into a new Federal student loan.
)It seems like a roundabout way to go about paying your debt: I mean, you are taking out a new loan to pay off another loan. The reality is that, if you are currently having trouble keeping up with payments or digging yourself out of debt quicker, a debt consolidation loan may be just the solution for you. Student loan consolidation is the process of combining your Federal student loans into one single loan.
Furthermore, there are other potential benefits to taking out a consolidation loan as well (such as being able to take advantage of student loan forgiveness programs). For example, you might have 3 or 4 different student loans by the time you graduate college (one for every year you went to school).
Your interest rate will be the weighted average of all the loans you consolidated (rounded up to the nearest 1/8 percent), and your payment should also equal the sum of all your individual payments.
Because remember, student loan consolidation is about convenience in paying multiple loans – nothing else.
WARNING: DON'T MAKE THIS STUDENT LOAN CONSOLIDATION MISTAKEThe first big problem that can happen with student loan consolidation is that, since you can consolidate just about every type of Federal student loan, you can accidentally put a loan type in your new consolidate loan that prevents you from having certain repayment plans. You can't transfer it to them, and you can't allow them to consolidate the PLUS loan into their loan.
Now you are paying just one payment of 0 per month (plus any applicable tax) instead of twice the amount like you were paying before.
If you can manage to add, say, an extra and pay 0 each month, you could in fact offset the time disadvantage that is introduced by paying less money towards your student loans.
Note: This doesn't apply to Spousal consolidation loans.
Especially so when you have your loans scattered between different student loan servicers.
It's not unheard of for graduates to end up with 5-6 different student loans, sometimes at different loan companies.
Read all about Spousal Student Loan Consolidation Loans here.