College graduates have a lot on items on their “to do” list; resumes, job interviews and perhaps finding a new place to live. You may also want to consider refinancing your student loans.
Reason 1: Simplify Your Repayments
Allison Kade of The Street says that “One of the biggest reasons is to simplify your repayments: When you consolidate, you go from having a bunch of separate loans to one monthly bill.” It’s not unusual for grads to have 8 or more student loans, which is a lot of separate bills to remember. Consolidation and refinancing greatly simplifies repayments.
Reason 2: Remove a Cosigner from the Loan
Almost 90% of student loans have a parent as a cosigner, meaning the parent is equally on the hook for the debt. While some loans will allow the cosigner to be removed from the loan the requirements can be fairly strict. A new loan will solve that issue.
Reason 3: Take Advantage of Your Improved Credit Score
Most students do not have much credit history when they obtain their first student loan. Usually the interest rate on the loans is higher due to a lack of credit history. Mark Kantrowitz, creator of FinAid explains. “You're getting a new loan with a new interest rate based on your current history and credit scores Right before graduation, your credit score at its lowest. If you want to reduce your interest rate, wait a few years and repay all your debts on time—not just student loans—show responsible credit behavior and improve your credit score. That will potentially yield a lower rate if you were to refinance.”
Reason 4: Reduce Your Monthly Payments
It is not unusual for new graduates to find their monthly debt burden to be cumbersome. When you consolidate the term of the loan is usually longer and the monthly payments lower, often by as much as 50%. While this may lessen the monthly financial pressure, the interest does accrue offer length of the loan, so don’t look upon the savings as “free money”.
Reason 5: Resets the Clock on Deferments and Forbearances
According to FinAid: Consolidation resets the 3-year clock on certain deferments and forbearances. A consolidation loan is a new loan, with its own fresh set of deferments and forbearances. This is a useful tool for medical school students, who do not get an in-school deferment during the internship and residency periods. They are, however, eligible for an economic hardship deferment for up to three years. If they need more than three years, consolidation is a useful tool for getting up to another three years of deferment.