Student loan debt is sweeping the nation and many young graduates are now saddled with thousands in debt upon graduation. On top of already high debt loads, some students are also facing high interest rates. Though most federal loan options can have reasonable interest rates, some students need additional funding through private loans, which may have variable interest rates at higher levels. Also, graduate students taking out Direct PLUS loans have higher interest rates. Currently PLUS loans have an interest rate at 7.21%.
Depending on your lender and the type of loan (e.g. private or public), your interest rate is either fixed or variable. Fixed interest rates remain the same, while variable interest rates can change at any time and is at the discretion of the lender.
It used to be that you were at the mercy of your lender and either stuck at one interest rate, or deal with potential increases. But in the past few years, several companies have been created to address this burgeoning issue.
Student loan consolidation companies can help you get a lower interest rate and manage your payments. By consolidating your student loans, you can get a new loan at a different interest rate to pay off your debt. Of course, you will still be left with another loan, but you will be paying one lender, instead of many, and potentially get a better interest rate.
Here is how student loan consolidation is changing the student loan industry:
A Better Interest Rate
Depending on your credit and employment status, you could potentially get a better interest rate than you currently have. Many people take out student loans as a young adult and if you didn't have a cosigner, your interest rates may reflect a higher rate, than if you had a cosigner. For those taking out PLUS loans, the interest rate is fixed during the life of the loan. So if you have upwards of $50,000 or more in student loans, a 7% interest rate can tack on a lot of interest, which will in turn increase the time it takes to pay back your debt.
Student loan consolidation companies can potentially save you thousands in interest, thus reducing the amount you pay, and shortening your debt repayment period. Conversely, some companies can offer lower payments, but you will end up paying more over time in interest. Be sure to calculate how much you will be paying over time, to see if consolidation will help save you money.
Some of the student loan consolidation companies offer extra perks to borrowers who refinance with them. SoFi offers unemployment protection to their borrowers, which allows borrowers to put their payments on pause if they lose their job. As an added bonus, they'll even help you look for a job and connect you with people in their network. In addition to career support, SoFi also has an entrepreneur program to help their borrowers launch their business and not let debt hold back their dreams. Aside from SoFi, other student loan consolidation companies mentioned in our reviews have an array of repayment options as well as potential discounts for borrowers.
Consolidate Private and Federal Loans
As a borrower, it's clear that federal loans and private loans are two different animals. They have different repayment terms as well as interest rates. Federal loans are typically more flexible with repayment options, but sometimes private loans can't be avoided. The good news is that with some student loan consolidation companies you can consolidate both your private and federal loans.
The aforementioned reasons are why student loan consolidation companies are shifting the student loan culture and shaking up the industry. If you feel you are locked into one rate, or one repayment plan, consider consolidation carefully. Look at all terms and conditions and do what is right for you.