After a period of frozen interest and suspended payments, the student loan pause officially ended on Aug. 31. Borrowers are once again seeing their student debt balances affected by interest accrual. Many of these college graduates have multiple loans — each one requiring its own payments on its own due date each month.
If you are the parent of a child who holds multiple student loans, there are steps you can encourage your child to take to help manage those debts. Based on the types of loans they hold, there may be different options for consolidation. Consolidation can simplify the process for your child: they may be able to reduce the number of payments made each month and obtain more favorable repayment terms. Suggest they take these steps to determine if loan consolidation or refinancing is right for them:
Take inventory of all of their loans
As a first step, graduates should determine where their loans originate, the current balance, applicable interest rates and when their first payments are due now that the pause has ended.
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Assess their options
If borrowers hold loans from the federal government, they can choose to consolidate them into another federal loan or refinance through a private lender. An advantage if they are able to consolidate loans with the federal government is that they don’t have to meet any credit requirements. However, they will not be able to consolidate at a lower interest rate than they currently pay.
Private lenders, on the other hand, will assess factors like their current income and credit score before refinancing loans. In many cases, credit scores will have to be in the mid-to-high-600s to qualify. With private lenders, they may have the opportunity to benefit from a lower interest rate. It’s also important to note that consolidation of loans that originate from private lenders can only occur by refinancing through a private lender.
Choose a lender
If your child opts to consolidate with a federal loan, they should refer to www.studentloans.gov. If they choose a private lender or are required to go in that direction, they have a variety of options as many firms offer student loans. An online search should help determine the best options. They should consider factors such as the potential repayment terms, variable rate options and any applicable fees.
Begin the application process
To consolidate with a federal loan, they should begin the application process at studentloans.gov. For federal loans, it’s important to remember they only have one opportunity to consolidate. This process typically takes less than 30 minutes, and there is no application fee. Your child should be ready with their Federal Student Aid I.D. and other personal and financial information. For a private student loan, they will work with the specific lender and follow their application procedures.
Student loans can be complex, and as a parent, you may have other questions about how you can help your children establish strong financial discipline. For additional support, consult a financial advisor skilled in multigenerational financial planning. Such an advisor can sit down with you and your child to talk about financial priorities and advise on steps to reach them with confidence.
Nic Gilliam, BFA™, APMA™ is a financial advisor with Cordian Wealth™, a private wealth advisory practice of Ameriprise Financial Services, LLC in Statesville. He specializes in fee-based financial planning and asset management strategies. To contact him, you may call 704-872-8181. He is located at 642 Signal Hill Drive Ext., Statesville, NC 28625.