There are many misconceptions about student loan refinance options. While some are just from confusion about the choices available, other myths arise from companies that try to scam consumers. For many, student loan refinancing can help you get back on your feet and begin making payments. Understanding the common myths about student loan refinance options can help you find the best ways to refinance your loan.
Myth: Consolidation and Refinancing Are the Same Thing
When you consolidate your loans, you are basically making multiple, smaller loans into one larger loan. This often helps to reduce your monthly payments and paperwork, but it is not the same thing as refinancing. Student loan consolidation only combines your payments, so you end up paying for the same amount of debt. With student loan refinancing, you can change the loan terms, duration or interest rate. Consolidation may help you to lower your monthly payment, but it is not the same as refinancing.
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While some refinancing programs do use variable rates, it is possible to find a fixed rate loan at various lenders. Even if you are only offered a variable rate, this is not necessarily a bad thing. Variable rate student loans often offer lower interest rates. Although these interest rates can change over time, the cost savings from when the interest rate is lower often equal out the time periods when you pay more in interest.
Myth: Federal Loans Cannot Be