Direct Consolidation Loan
All through the country this scenario gets played out every single year. You graduate from college, get a job, realize that you will soon have to pay back some of the student loans and then panic.
After a few hours of panicking you will look for ways to refinance student loans so you can reduce the monthly payment. The chances are you will end up looking a Direct consolidation loan at some point. While starting to consolidate student loans into one amount that allows you to pay less may seem like a great idea in theory in practice it may not only be hard to do for some of your loans but it may not be the best long term plan.
The first thing you should do is collect all your paperwork together and get a realistic idea of what you owe to whom. Not all loans are the same so you need to know exactly what you are working with before you make any decisions that are going to affect your financial future.
Separate your papers into three piles and then let the work begin
- Federal student loans
- Direct loans
- Private student loans
Refinance Federal student loans
Federal student loans are all issued with a fixed interest rate, unless your loan was taken out before mid 2006, so there is no point in refinancing them with a direct consolidation loan as interest rates haven’t moved enough since then to make a huge difference in your payments.
Federal loans also can not be consolidated with private loans, so if like most students you have some private student loans as well as federal student loans you will still end up with more than one direct consolidated loan.
Federal college loans have many benefits, not just the fixed interest rate, they offer much better forbearance, deferment and the tax deductions are worth considering. If you have enough spare cash to pay some of your loans off the federal loans should be the last ones that you pay off as they are the easiest ones to work with.
Nelnet are set up for easy deferment of your federal student loans, in fact you can even arrange it all online.
Refinance Private Student Loans
When you start trying to refinance private student loans you will see so many options that your head will spin. Companies are so keen to help you refinance your loans that it is almost too easy to do.
Taking the easy route is not always the best route. What is best for your finances is not going to always going to be the route that fits in with your wants. Just remember you took these loans out and the company lent you the money in good faith so you owe it to yourself and them to pay it back.
Before you start to consider a direct consolidation loan to refinance any of the loans you should look at all your private college loans, how much do you owe on each and what interest rate are they charging? Are any of them small enough amounts that you could clear the debt off right now? The less you put on a direct consolidation loan the better it will be long term.
When you refinance student loans you are extending the term of payment, this means you pay a lot more interest over the term. Even if the agreed interest rate for your student consolidation loan seems reasonable it will add up over time. The longer that you take to pay it back the more interest you will have ended up paying on your loan.
Before you try and get a direct consolidation loan you should see if you can afford to pay any of them off, will the company give you any kind of loan forgiveness and generally reduce the capital sum as much as you possibly can. The less you owe the cheaper and easier it will be to get a direct consolidation loan.