I may earn money or products from the companies mentioned in this post.
Student loans have become a major burden to more and more graduates over the past few years. In order to go to college, some people just can’t afford the cost upfront.
So now, the average debt a graduate had coming out of college in 2016 was $37,172. And this is up 6% from the previous year!!
Sometimes it’s just not feasible to afford a college tuition without having to take out a loan. For those who get a higher education, the debt can run around $100,000 or more. Even 1 in 10 have more than $150,000 in student loans.
Luckily, there are options to take on this debt and hopefully get a lower rate. At the very least, you get everything organized under one payment.
- How Changing the Student Loan Payment Plan and Refinancing with SoFi Saved My Girlfriend Over 5 Years and Thousands of Dollars
- 18 Ways to Pay off Debt Faster
- Should You Focus on Paying Off Student Loans as Fast as Possible or Also Invest at the Same Time?
Fortunately for my girlfriend, she was able to not only get her loans financed, she was able to get them consolidated into one loan. She could do this because of her plan with SoFi.
SoFi will consolidate and refinance both federal and private student loans. They are a private lender, so when they consolidate your student loans, they are actually refinancing them. Depending on what your previous situation was, you may be able to get a lower rate.
My girlfriend was able to lower the interest rate on her loans from 7.2% all the way down to 4.3%. This was due to having a great credit score and passing SoFi’s eligibility requirements, like their salary requirement and improved credit. They even say on their site it’s not for everyone, it’s really for people who have improved their financial position since they graduated from school concerning their employment, cash flow and credit.
Here is a breakdown from SoFi’s website to see if consolidating with them makes sense for you:
But is consolidating really for you?
For most people, you can consolidate your loans if you meet the following requirements:
- Presently not in school or at least enrolled in less than a part-time student
- At the moment, you’re making loan payments or are in your grace period
- You have a good repayment history and haven’t defaulted on your loans
- You have at least $5,000-$7,000 in loans
You don’t need to meet a minimum for combining debt under the Federal Direct Consolidation Loan Program, but private lenders and loan companies tend to demand a minimum loan balance. SoFi requires a minimum loan amount of $5,000 as of today.
Advantages of consolidating your loans:
Simplify your payments
- By having 1 loan instead of say 5 individual loans, you only have to keep track of a single loan repayment date that you can automate from your checking account
- This is much better than having to worry about multiple dates throughout the month
Pay your loan off earlier
- You can pay your loan off faster without any penalties for paying more
- When your loan gets refinanced, the term to repay it can be longer (good if you can’t make the monthly payments on a shorter term)
- But like I said before, that’s okay because you can always pay more than the minimum amount to shed those years off quicker
- All you have to do is make sure you tell your loan servicer you want to have the extra funds applied to the principal amount
- Don’t listen to this article it’s flat-out wrong
- While I don’t know for sure if the government has stopped issuing student loans with variable rates, I do know for a fact consolidating can potentially save you money
- My girlfriend decreased her interest rate by 40% saving her thousands of dollars
- If the article meant literally just consolidating, then sure, but if you use a private lender like SoFi, then you 100% have the potential to save money
Switching from a variable rate to a fixed-rate loan
- Depending on what your other interest rates are on the other loans, this may or may not work for you
- Usually, it does, so it’s always worth considering, but make sure you know with absolute certainty the fixed rate is lower than the average rate of all your outstanding interest rates
- It wouldn’t make sense to consolidate only to realize your interest rate on the combined loan ends up being greater than if you were to pay off each one individually
If you have better credit than when you first took out your loans, you can get better rates
- By showing you are able to make payments on time and are unlikely to default on your loans, you have a greater chance of getting better rates
- Like I said, my girlfriend was able to drop her rate from 7.2% to 4.3%
- That’s ridiculous! A 40% decrease in rates; SoFi really is the best in my opinion
You can avoid defaulting on your loans
- If you’re seriously strapped for cash and can’t shorten your loan repayment plan, this is a great option to extend the repayment plan to make lower payments
- I highly advise trying to avoid this scenario at all costs and use it only as a last resort if you absolutely cannot make the payments
- That being said, this is assuming you’re making sacrifices now to enjoy life later, like cutting expenses on eating out, buying coffee, etc.
- You don’t need to buy all that stuff in your 20s and 30s
- Work your ass off and sacrifice a few bucks to enjoy your hard work later
Possible disadvantages of consolidating your loans:
Pay more in total interest
- Like I mentioned before, you may actually find yourself with a higher interest rate than beforehand
- Always, always check before you commit to it
Lose borrower benefits from your current lender
- All loan benefits might be lost, such as repayment plans, forgiveness and discharge benefits
- If you have loan forgiveness, in my opinion, it’s not worth the risk to consolidate your loans
- I know people who my girlfriend went to school with who only have to pay something like $100 a month for 10 years of working at a hospital instead of paying the full amount, which literally runs up to $400,000 between undergrad and graduate school student loans
- You may have discounts as well on interest rates, or rebates that you won’t have available to you with the lender providing the consolidation
Lose the strategy most advisors say to use
- If you consolidate, you won’t be able to pay off your smallest debt first
- A lot of advisors recommend this strategy to enable their clients to gain confidence and momentum that they can overcome their debt
- If you only have one loan to pay off, psychologically it could be tougher on you
Loss of grace period
- If you consolidate your loans during the initial grace period you could lose the remainder of it
- You can literally get penalized for being responsible, it’s crazy
- This is because the lender is afraid of losing money from the interest that won’t be paid
- This happens because you’re paying your loans back at a higher and faster rate than originally planned, so the interest on the principal won’t be as much
- It’s really ridiculous if you ask me; it’s right on par with financial advisors scamming you into paying 2% on mutual funds that absolutely suck
- SoFi doesn’t penalize my girlfriend for prepayments, so that’s once again another awesome reason to look into these guys
So there you have it. Loan consolidation may not be for everybody, but it sure does a hell of a job when it’s the right fit. The first place I recommend looking into is SoFi, they provided great rates and are very quick in getting everything done.
Do you have any student loans? If so, are you considering consolidating them? Why or why not?
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