Consumer Warning: Protecting Your Cash and College Credit. Part 3. Refinancing and Consolidation of Student Loans

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So here’s a great tip for current students. If you took out a private loan, try paying only interest on it while you are in school. If you have a government-backed loan, interest is deferred until you graduate.

Here’s another problem to think about. What is the best way to deal with this debt after graduation? Should loans be consolidated or refinanced? This is a great question for Experian experts.

“When you refinance, you get a new loan with essentially a lower interest rate from that lender,” said Rod Griffin, senior director of consumer education at Experian. “When you combine a student loan, you may have multiple student loans and work with a lender to get one loan that pays off all of them, which combines them into one loan that you pay off over time.”

Let’s look at two scenarios. Imagine you have a private loan and want a lower monthly payment. Refinancing with a private lender may be your best option because you will likely save money by getting a lower interest rate now that rates are at historic lows.

But what if you have multiple federal student loans? You may want to combine these into one federal loan, which will make you eligible for federal programs such as income-based repayment plans or forgiveness loans.

Let’s take a look at Paul’s riddle. Paul is a TV viewer of NBC News10. He sent me an email that partially said: “I recently asked for a report on how payments on my (student loan) were applied … For 2 years all my payments went to interest and nothing went to the principal account … “

This is called a negative amortization loan and is bad. This is when your minimum monthly payment is not enough to pay off the principal, only interest. This means that you are not paying off the original debt. So should Paul refinance a loan to get a lower interest rate and lower monthly payments? Was his loan agent wrong? I’m going to investigate this. I’ll keep you posted.

If you have problems with your loan agent, you can contact the CFPB – Office of the Ombudsman for Student Loansthen U.S. Department of Education / Federal Student Aidthen National Center for Consumer Lawthen Attorney General of New York State or your state’s attorney general, or New York State Department of Education

Loans secured by a federal loan provide a number of loan facilitation options. Click here to find out more about them.

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