The Truth about Consolidating Student Loan Debt: Can You Refinance?
Student loans can be an incredible burden on a graduate, but they are often necessary to get the degree that is required for success. As it turns out, student loan debt may not be quite as bad as many people think.
We’re going to explore how you can consolidate your federal and private student loans, what consolidation means in general, and if there are any myths about consolidating consolidated student loans.
The Truth about Student Loan Debt
The Facts If you owe $100,000 in student loan debt at an 8% interest rate, and you owe this loan to the government, it would take you 11 and a half years to pay off the loan at the current 8% interest rate, assuming you made no other payments during that time.
However, with a Consolidation Loan, you could save up to 60% on your interest rate, by paying off your private loans with a Consolidation Loan. There are some situations where you may want to combine your student loan debt with another loan.
There are two main advantages to combining loans: Converting or Refinancing Student Loan Debt When you combine your student loan debt with another loan, you can potentially save money on your interest rates.
Consolidating Student Loan Debt
When you consolidate student loan debt, you can keep multiple loans together to make them more manageable, but there are some significant consequences to this process, so you need to know what they are before you do it.
Federal Student Loan Consolidation If you are a recent graduate, or even an older student, and have federal student loan debt, then student loan consolidation might be a good way to get out from under the weight of debt.
If you consolidate your federal student loans with your current servicer, you can make monthly payments more manageable and get a lower interest rate, which will allow you to pay more in interest over time and reduce the debt.
Myths about Consolidating Debt
For many years, there was a common misconception about consolidating debt. As it turns out, the government offers several options for borrowers to consolidate their federal student loans.
While some people do take advantage of these options, there are several myths and misconceptions that still surround this simple and logical way to pay off debt. Myth #1: I Can’t Consolidate My Student Loans Many borrowers may assume that you cannot consolidate your federal student loans.
Many people who learn that you can do so, figure that they’re out of luck and think they should have done it years ago. A government program called the Direct Loan Forgiveness program can help students who consolidate.
The Benefits of Consolidating Debt
With all of the different debt obligations, Federal student loan consolidation can be a relatively simple solution. There is no limit to the number of student loan accounts that you can consolidate, and you can even consolidate the student loans from multiple schools, as long as you qualify for a consolidation loan.
The consolidation of federal student loan debt actually makes it easier to manage your payments since you can only pay one student loan at a time. It may take some time to make sense of all the different repayment options, but doing so could be a major time saver for you.
The Dangers of Consolidating Debt
If you consolidate debt to lower your interest rate, you may not be saving any money, and in some cases, you may be making it harder to pay off the loans that are actually causing you the greatest burden.
The IRS does not like when you get a loan and pay it off with the loan company, so if your student loan debt is getting paid off through consolidation, the IRS won’t let you get a tax deduction. If you go through the process of consolidating student loan debt to get a lower interest rate, the IRS might look at that consolidation and deem it to be income.
They may fine you. They may even deem it income and send you a tax bill. As you can see, the odds of earning a tax deduction on consolidation debt are pretty slim, but there are other consequences of consolidation.
So, what does consolidating student loans actually mean? Here are some of the benefits of consolidation that may surprise you: Cost Savings: Consolidated student loans may be cheaper than ones made by individual lenders.
This is largely because the payment for consolidation will be made by one institution, rather than being split up between several. This means that payments will be lower, and the loan principal will be less expensive.
Consolidation may be cheaper than the ones made by individual lenders. This is largely because the payment for consolidation will be made by one institution, rather than being split up between several. This means that payments will be lower, and the loan principal will be less expensive.