Refinancing debt to consolidate multiple loans into a single one is a standard of debt management. Sometimes it’s to get access to a more favorable interest rate. Sometimes it’s to reduce the monthly payment requirements by stretching them out of a longer repayment period. And in some cases, it’s just for the administrative ease and simplification of being able to make all the payments to one loan servicer.
When it comes to student loans, however, the refinancing picture is more complex. The reason is that today’s student loans are actually a combination of Federal and private loan programs, and to help alleviate explosive levels of student loan debt (the total of which now exceeds all outstanding revolving credit card debt in the U.S.!), Federal student loans are getting access to multiple forms of flexible repayment plans. Some of which even include terms that allow unrepaid student loans to be forgiven after 25, 20, or even 10 years in some circumstances.
But flexible Federal student loan repayment programs are only available to Federal student loans. In fact, old Federal student loans (under the prior Federal Family Education Loan [FFEL] program) can even be consolidated into new Federal loans eligible for (more) flexible repayment and potential forgiveness, under the Federal Direct Consolidation Loan program. (more…)