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Student loans are a terrifying topic. College students who have them are worried about how they’ll pay them back following their college graduation, and those who are approaching their repayment date feel the same fears. Millions of Americans have already defaulted on the repayment of their student loans, and millions of Americans are worried they cannot afford to pay their loans. With more students than ever before graduating with an average student loan debt more than $30,000, it’s no wonder the subject is terrifying. Before repayment begins, former students are worried about refinancing or consolidating their student loans.

The simple truth is the information made available to students isn’t always the most accurate. It’s sometimes misleading and many are misinformed. It’s imperative you learn the differences between consolidating and refinancing student loans so you know which one is the best idea for you, and so you know how to adequately handle your own finances in the future.

Consolidation of Student Loans

Consolidation seems to be an easy subject to understand. You work very hard to ensure you’re able to take all your student loans and roll them into one loan and one payment. This eliminates the need to pay several interest rates, and it’s designed to save consumer’s money. Or is it? It might make the amount you pay each month lower and more affordable right now, but you’ll pay a lot longer. The purpose of student loan consolidation is to lower interest and payments by drastically extending the amount of time you have to pay off your loans. If you spend many additional years paying off your loans, you spend thousands of dollars more in student loan interest than you would by not consolidating.

Student loan consolidation is only useful if you can consolidate now and make additional payments to pay your loans off as quickly as possible. It’s also only beneficial to those who simply cannot afford to make the payments on their loans. It’s not a good idea for you to pay student loan interest longer, because it’s far more expensive.

Refinancing Student Loans

Refinancing is another idea for students, but it’s not available to all students. This is a method of lowering the amount of your loans by refinancing them into one loan. It’s available to only those with good enough credit to qualify, and it’s only available to those who graduated with an undergraduate or graduate degree. Anyone who left school early does not have the option to refinance student loans.

The good news about refinancing student loans is you can do this to both federal and private loans. This makes it much easier to get one payment. Whereas with consolidation you can consolidate both types of loans, you cannot consolidate them together. Federal loans are federally consolidated, and private loans are privately consolidated. It’s an interesting concept how they make all this work, and it’s something to consider when it’s time for you to get your finances in order. Refinancing is a better choice than consolidation because it does give you the opportunity to save money over the life of your loan repayment. The rates are typically much lower and much more affordable, and it’s easy to use this method as a way to save.

The other benefit of refinancing is you can do it as often as you like. If rates drop a year after you refinance, you can do it again. With consolidation, you get one option. Refinancing allows you to save money anytime the interest rates drops so long as your credit is strong enough to allow you to make that kind of savings a priority.

When it comes to saving money on student loans, your best option is to refinance. If you cannot afford to refinance or your credit is not strong enough for a refinance, it’s best to consolidate. There are other options for those in extreme financial need in the way of income-based repayment programs. You can handle this on your own, but you’ll need to look into your options to learn what’s best for you and how you can repay your loans in full.