Consolidating loans in default
If you already have bottom-of-the-barrel federal interest rates, a private consolidation may not offer an interest rate reduction.
But if you have a higher-interest federal loan, such as a Stafford Unsubsidized Loan or Parent PLUS Loan, private consolidation may help you lower your interest rate. ” The answer to that question depends on several factors.
The most important aspect in making this decision, as with any financial decision, is being aware of all of your options.
When you consolidate, you may forfeit these benefits. This includes deferment, grace periods and income-based payment plans.If you extend your repayment terms from 10 years to 20 years in order to get a lower monthly payment, you can wind up paying tens of thousands of extra dollars in interest over that longer time period. Depending on the lender that you select, you may or may not be charged an origination fee of anywhere up to 2 percent.If you refinance ,000 in student loans and your bank charges an origination fee of 1 percent, you’re looking at paying an additional 0.If you find yourself in a situation where you’re not making much money right now but anticipate a salary increase in the future as you grow in your career, it’s worth checking out these options first before locking yourself into a consolidation.
Some consolidations will come with their own alternative repayment plans; not all will, so make sure you know what you’re getting into.
You can check out federal loan repayment options here or contact your lender directly to find out the options for private loans.