Student Loans Should I Consolidate my Student Loans Consolidating Student Loans

Should I consolidate my student loans? This is a question over 44 million people have asked themselves and today we're going to give you the tools and information you need to answer this question for yourself. Let's get to work. With a national average of around $35,000 for an undergraduate degree, around $71,000 for a graduate degree, and $190,000 or more for a medical degree, this can be an overwhelming decision. If I could, I'd give you a hug right now and tell you it's going to be okay. You can do this. Hey, real quick, just a few topics today. Number one, what is student loan consolidation? Number two, what is the difference between consolidating your loans and refinancing your loans? And then number three, what are your financial priorities? What are the pros and cons of this decision? And then number four, I'll share some hypothetical scenarios, just some figures for you to chew on, so that way you can see a rough idea of when it might make sense and when it might not. What is student loan consolidation? Very simple. This is taking your multiple federal student loans with varying interest rates and combining them down into one student loan with one monthly payment, hopefully at a smaller interest rate than what you have now. Just a few basics real quick, you need to make sure that you are aware of all of your loan details. For your federal student loans, log into studentaid.gov, log in using your FSA ID and password. You want to make sure that you get the details on each specific loan. You want to know what the original loan balance was, the accrued interest, the interest rate, the loan term, and when the next payment due date is. If you have private loans, you want to gather the same information when you log in online through their website. I've got no affiliation with studentloanhero.com, but they've been a great resource for me to learn more about this topic. You also can go to this website right here, studentaid.gov, and then also debt.org has some great resources as well. Go ahead and take a screenshot of this picture right here. Got it from debt.org and it outlines many of the pros and cons of consolidating your federal student loans. You can only consolidate your federal student loans once, so good job clicking on this video, but you need to continue to do more research beyond this. Your federal loans can be consolidated for free, which is nice, through what's called a direct consolidation loan, but when you think consolidation, think federal loans only. So by now you might be asking yourself, what is the difference between consolidating your student loans versus refinancing your student loans? And honestly, that's a great question and you're not alone. In my experience of giving presentations and guiding a lot of graduates through this decision, they often use the word consolidating, but what they really mean is refinancing their student loans. When you consolidate your federal student loans through the direct consolidation loan program, you do end up with one student loan and one student loan payment, which is nice, very convenient. But here's the kicker. The interest rate on that loan is simply the weighted average of all of your previous federal student loan interest rates. That is not the same as refinancing and you need to be aware of that. Refinancing your student loans is based on your credit score and with a good score, you very likely are going to get an interest rate below what your federal student loan interest rate is now and below what that weighted average would be. But now this game is shifting a little bit because now we're bringing credit scores into the mix. If you have both federal and private student loans and you want to bundle them into one student loan payment, that can only be done by refinancing your student loans through a private lender. Now, don't be confused when you hear private lender. It basically just means anyone other than the government. So your bank, your credit union, or simply doing it online. If you are considering refinancing your student loans, do not allow the new company to charge you a percentage of your new loan balance as a fee. A lot of companies don't charge application fees or origination fees. Make sure you find out who will be your loan servicing company because some are better than others. 90% of these loans are going to be assigned to one of the big four loan servicing companies. Fed loan servicing, Great Lakes, Navient, or Nelnet. The other 10% will be assigned to one of the five non-profit loan servicing companies. Cornerstone, Granite State, HESC, Mohila, or OSLA. Side note, all conflict is a result of expectations not being met. So if you are expecting too much from any of these loan servicing companies, you're setting yourself up for disappointment. You need to take some personal responsibility and take it upon yourself to learn what you think is in your best interest because there are 44 million people that have student loans. When you call these companies up, you are just a number to them. How are they going to know what's going on in your life to give you a recommendation that's based on your best interest? Why am I yelling? Why am I yelling? I don't know. Why am I yelling? I don't know. If you're looking for a quality company, I highly recommend SoFi who partnered up with Mohila. There's a referral link in the description below. If you sign up with them, you'll get a hundred bucks. So what are your financial priorities and what are some pros and cons to this decision? My initial reaction to anyone considering consolidating or refinancing is it depends. I know that wasn't the response you're hoping for, but it's the truth. Everyone's situation both personally and financially is different. It truly depends on your specific situation, whether you should consolidate, refinance, pay the minimum, pay extra, forbearance, deferment, it's entirely up to you. However, I will say that in my experience of analyzing a lot of student loans that people have brought to me with questions, for the majority of people, it usually does make sense to refinance your student loans. Here are a few questions that you need to answer to help you make this decision. Will you be going back to school after completing your associate's degree, after completing your bachelor's degree? If so, you might not want to What about your career? Do you work for an organization or in an industry that will allow some of your student loans to be forgiven after a certain period of time? If so, how long have you already been paying for your student loans? Because consolidating or refinancing them will restart the clock on that forgiveness period. So be careful. What about your income? Make sure you are aware of the earned income thresholds to qualify for certain income driven repayment plan options or student loan forgiveness options. The standard federal loan repayment plan is based on 10 years starting right after you graduate. You do have six months of deferment after your graduation date, but you could start paying before then if you want. If that 10 year repayment plan payment is too high, you might want to consider refinancing. But there are some trade offs. If you refinance to a longer term beyond 10 years, the benefit is it'll be a smaller monthly payment today, but over the lifetime of that loan, you'll actually be spending more on interest. So be aware of that. What about your credit score? If you have a good score, you might want to consider refinancing your student loans. If not, maybe consolidation is a better option for you or just sticking with that 10 year standard repayment plan. If you're interested in how to improve your score, link in description down below. Quick tip. If you just graduated and your student loans are in deferment for that six month window before your first payment is due, try your hardest to improve your credit score during that six months before you refinance your loans. Doing that will actually increase your credit score and get you a lower student loan payment, which can save you hundreds if not thousands of dollars. What about when to refinance your student loans? In my opinion, the best time to do this is within six months of graduating, because then you develop that habit of making that one payment month in and month out. But even if you've already refinanced once, take a look at your interest rate and the remaining years left on your loan, because interest rates so far in 2020 have been dropping quite a bit. It might be advantageous for you to consider refinancing again if it saves you money. If you find any value throughout this video today, hit that like button. That one simple action by you will result in helping someone else become more financially aware to make smart, educated decisions about their finances. Okay, when does it not make sense to refinance or consolidate your student loans? If you work for a qualifying non-profit organization or a government agency, you might not want to do this, because after making 120 qualifying payments, the remaining student loan balance is forgiven. Do some additional research if you're in that situation, cross your Ts and dot your I's. If any of this video has been helpful for you, share it. And if you know someone that has student loans, text them this video. They might appreciate it. Okay, here's a quick example of somebody graduating with approximately $140,000 of student loans. Let me walk you through the numbers real quick. On the left, you can see the year the loan was taken out, the original loan balance, the amount of interest that has accrued since the loan was dispersed, and the total of all of the individual loans here. You can see the various interest rates for each loan, the standard repayment period of 10 years. You can see the total amount of interest to be repaid per loan, as well as the total monthly payment for a grand total of just under $175,000. Hope the education was worth it. Now, as we compare a consolidation versus a refinance, we can clearly see that these interest rates are pretty high. The average, the weighted average of all of these loans would be approximately 6.22%. As we compare that to a refinance, which according to student loan hero.com, you need approximately a 660 credit score or better to refinance in order to get a student loan of this rate of 3.125%, you very likely are going to have a much stronger credit score than 660. Moving forward, as we compare the 1456 per month monthly payment over 10 years to some of these other monthly payments, we can immediately see that a 3.125% interest rate over the same 10 years is going to be less money per month and less total money out of pocket in general. When we consider possibly stretching this out even further, as you can see, the payment does go down, but you do end up paying more money total for the life of the loan than what you see here. So that's the trade-off that we were discussing earlier, comparing the 10 year at 1353 per month to a 15 year or 20 year with a less smaller monthly payment. Now, this is just a hypothetical. This is not financial advice. I would imagine that if you change the terms of the loan specifically, meaning the amount of years to be repaid, the interest rate would likely fluctuate with the loan term period as well. So this is just a hypothetical example just to allow you to see some numbers. Food for thought. Hey, thanks for watching. Appreciate your time. If you have any questions for me, leave them in the comments down below. If you're wondering how you can improve your credit score, go ahead and click this link right here. And if you're wondering if now's a good time for you to refinance your mortgage, this is a great video as well. Thanks. Go live your best life.