Most Americans are living with financial regret, while paying off student loans for 18.5 years, starting at age 26 and ending at 45. Spending a significant portion of your life repaying on college tuition fees is a reality many Americans.
While struggling with multiple student loans, you can consolidate any federal student loans listed so far into one main pile of money that will count as one account with one monthly payment to the same company every month.
Usually, the newly obtained and fixed interest rate is equal to the average of the interest rates on the loans being consolidated.
Unfortunately, many students who have heard about how to consolidate the federal student loan rush into it without enough thought.
These are some of the more common student loan consolidation mistakes that students from all the United States of America make every year, repeatedly:
- Choose to consolidate a student loan because it worked well for a friend or for a colleague
Even if consolidations worked for 90% of your friends, it does not mean you already know how to consolidate federal student loans and this is the best solution for you. You must realize that everyone has their own unique priorities, financial goals, and lifestyle preferences. However, before you decide to follow in their footsteps, give some thought to whether refinancing or consolidating your loans will work for you in the same way.
- Not exploring all the available debt management options
Consolidation may be among the more popular solutions for student borrowers looking to manage their debt. However, they certainly aren’t the only solutions out there. There are a few cons to choosing either refinance or consolidation. Perhaps the biggest is losing any federal perks when you refinance or consolidate federal loans. It is important to explore all other available solutions before you can say with certainty that refinance or consolidation is the best one for your situation. Every solution has its own benefits and downsides. You must weigh the pros and cons of each carefully before you deciding on what works best for you.
- Signing up with the first available financial institution
After exploring all the available options and decide that consolidation is the best option for you. Your next step now is to look for a lender to work with. One mistake many student borrowers make is signing up with the first lender they talk to. They want to get it over and done with and also the lender’s terms sound really attractive.
Not comparing offers from various financial entities
When it comes to student loan consolidation or refinancing, comparison shopping is the key. Every lender may offer completely different deals, from different rates of interest to different payment terms and even different penalties for delayed payments. If you sign up with the first lender you find, you could very well have missed out on a better deal had you only checked around a little more.
You absolutely must check the terms and conditions, as well as the interest rates with different lenders before choosing one that seems right for you. The good news is you can directly compare lenders online, so there is absolutely no excuse for missing out on this step. After you’ve done your online comparison, you can shortlist a few that seem like the best options and visit these personally.
How to consolidate all the student loans
When you consolidate any student loan, the refinanced or consolidated loan is treated as a new loan. This means you lose all the benefits associated with the original loan. This may not be in your best interest, especially if there are any associated benefits that you may want to take in the future.
You must make strategic decisions. Make sure it benefits you both in the short and long term. Go through the terms, conditions, and benefits associated with each loan carefully. Weigh the merits of each loan before deciding which ones to refinance/consolidate and which to leave as is. You may end up deciding to refinance or consolidate all of your loans but when you go through this process, you are less likely to make a wrong decision.
- Relinquishing Federal Student Loan Protection Unknowingly
This is one of the more common mistakes many student borrowers make. They do not read the fine print in detail and only realize that they forfeited their federal student loan protection after refinancing or consolidating. By then, it is too late.
You must explore other ways to manage your loans. One such viable alternative is signing up for an Income-Based Repayment plan. With and Income-Based repayment plan your monthly payment is calculated as a percentage of your income.
More importantly, it allows you to maintain all benefits and protections associated with the loan.
When Your Federal Student Loans Are in Default
Loan consolidation is another option to get out of default. You’ll need to make three consecutive monthly payments on your defaulted loan before you can consolidate it.