According to the most recent numbers from the U.S. Department of Education, approximately 1 in 6 borrowers, are defaulting on their student loans and haven’t made a payment in at least a year. For those of you that are in good standing, now may be the time to consider your loan options.
There are many important things to consider when attempting tackling your student loans. First off is whether to consolidate or refinance your loans. Consolidation is combining your student loan payments into one while refinancing is reconstructing your existing loans into new ones. Consolidation simplifies the payment process as you are only cutting once check or ACH debit a month. Refinancing more often than not results in your payments having a lower interest rate and thus a lower monthly payment
The decision process does not end here, however.
Another thing to consider is time and how long you want to be paying off your student loans. Appropriately spacing out your payments is a crucial part in the process. You need to find a plan that best suits you and your life. Having your payments stretched over a longer period of time will mean lower payment amounts, but you are also responsible for them for a much longer period of time. On the other hand, you can pay them off in a shorter amount of time but with a much higher cost.
In addition to time you must consider the interest rate of your loans. It would be an easy decision to refinance your loans so that they have a lower interest rate but it is not always that simple. Things like having a poor credit score could inhibit you from doing so. Also, if you have a federal loan, the only option of refinancing is through a private lender, who are much more complex than the federal government.
Ultimately, the path you wish to take when solving your student loan dilemma is based on how best you can handle the situation. You need to understand and decide how long you want to be paying your loans while still actually being able to pay them.