EMERYVILLE, Calif., Feb. 12, 2018 /PRNewswire/ -- Consolidation is one of many options for federal student loan borrowers to manage their debt. With so many options, including more than one income-driven repayment option, it can be hard for borrowers to know what to do. American Financial Benefits Center, a document preparation company that assists borrowers in applying for and staying enrolled in federal income-driven repayment plans (IDRs), says that consolidation is an essential step in the IDR process, but should be thoroughly considered in other situations.
Consolidating federal loans involves combining multiple loans into one new consolidated loan, setting the interest rates as the weighted average of the original loans' rates, and offering new loan terms of up to 30 years. Consolidated loans, because of the extended payoff terms, can cost borrowers more in the long run, though they may simplify the payment process.
"Because borrowers often leave college with multiple federal loans, consolidation can be an easy way to simplify their loans," said Sara Molina, manager at AFBC. "However, just consolidating your loans won't save you money, so we don't usually recommend consolidating federal loans unless borrowers are also applying for an income-driven repayment plan."
Borrowers looking to simplify their loans may consider consolidation, but they should think about it before pulling the trigger. Molina suggests looking specifically at the interest rate and loan term. The longer the loan term, the lower the payments will be, but the more the borrower will pay in interest in the long run. Borrowers who need to lower their payments may want to look into income-driven repayment plans, in which consolidation is often the first step.
IDRs base payment amounts on income and family size, and after a 20- to 25-year loan term, any remaining balance will be forgiven. AFBC helps borrowers understand IDRs, decide on the most beneficial plan based on each borrower's situation and apply for the program. The company also assists borrowers in the annual recertification that is necessary for prolonged enrollment in IDRs.
Note: Consolidation is sometimes confused with refinance. Refinancing is the private sector's equivalent to federal consolidation. Borrowers can refinance federal loans, but it is not often advised as they would lose access to borrower protections inherent in federal loans, such as access to IDRs and subsidized deferment for select situations.
"Consolidation is a good thing to know about because it can be easy to confuse with refinancing," said Molina. "We help our clients understand the whole IDR process, including consolidation, and make it as easy as we can for them."
About American Financial Benefits Center
American Financial Benefits Center is a document preparation company that helps clients apply for federal student loan repayment plans that fit their personal financial and student loan situation. They adhere to strict customer service guidelines and strive for the highest levels of honesty and integrity.
AFBC is a member of the Association for Student Loan Relief (AFSLR) and each representative on the phone has received the Certified Student Loan Professional certification through the International Association of Professional Debt Arbitrators (IAPDA).
To learn more about American Financial Benefits Center, please contact:
American Financial Benefits Center
1900 Powell Street #600
Emeryville, CA 94608
SOURCE American Financial Benefits Center