Loan Consolidation: A First Hand Account

“Life is a succession of lessons which must be lived to be understood.” – Ralph Waldo Emerson

 

This is going to be a quick one. Let’s be honest; there are already hundreds upon thousands of resources available to educate you on the best way to handle your student loan debt. Consolidation is always an option. Rather than telling you how I did it, or who I suggest you use, let me briefly explain why I did it and my story, as everyone’s situation is different. I owed a decent, not extraordinary amount of money upon graduating with my master’s degree- a cool 70k. While there are plenty of people who may owe 170k or even 270k, given my income level and my financial situation, it was still a burden for me to make the payments.

 

Yet, I had a plan. My total monthly payments before refinancing were going to be about $900 a month. Of that, $700 was for federal loans and $200 for private loans. While I could just afford this, I wasn’t comfortable having to be accountable for so much each month. I also have a mortgage and other expenses to pay. I looked into consolidating my loans and realized I could do it directly with the Federal Government rather than a private lender since most of my loans were government loans. I applied to a few private institutions but kept getting interest rates over 6%. Sticking with the Government I received a rate of 5.5%. The best I received by far. I then consolidated all of my government loans, which brought my total refinancing amount to about $59k. The remaining $10k was 4 small private loans which I kept under that lender. What I did, which has really helped me, was taking the longest repayment term I could with the government – a whopping 25 years !

 

Now, before you start yelling and shaking your head at me, listen to this. At 25 years, I was still going to pay the same interest rate as the 5 year loan. The only difference; they would take less for principal each month. We’re talking approximately $1k a month for a 5 year loan vs $360 for a 25 year loan. In turn, this alleviates the pressure to have to pay a high amount each month, especially if you don’t have the money. But I could always give them more.

My plan was to roll in more money each month as I paid down my other 4 loans. If I paid off a private loan which was about $50 a month, I would now give that additional $50 to the federal loan. Now that I owe less than $2k with my private lender, I can give my federal lender an extra $150 a month towards the principle. Therefore, I benefit from the same low interest rate as anyone else who refinances with the government (they set the rate), but I get to make the payments on terms that are more comfortable to me.

 

This alone means I will pay off my loan in less than 15 years now. As I make more money (hopefully) and pay off any other debts, I am hoping to eventually pay 700 a month. The additional 350 month would pay off the loan in less than 10 years. If I have some extra money from tax returns or bonuses, I can apply that to my loans as well. The beauty of the long term loan is not necessarily because you will take that long to pay off your loans, but because if you can’t afford the high payment for a period of time, you won’t be ruined financially. Therefore, the most important thing when refinancing is the interest rate and the payoff terms. Choose the longest amount of time you can at the best rate. You’ll be thankful you did! Do you have questions about the loan consolidation process? Let us know in the comments below!

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