College loan refinance is not consolidation

It is a common mistake for people to confuse college loan consolidation with college loan refinance; however, they are two completely different options for those who have outstanding student loans. Consolidation means combining multiple educational loans in order to lower monthly payments and have the convenience of making only one payment. Refinancing is a step that occurs after—sometimes long after—you've consolidated your loans.

The benefits of college loan refinance

College loan refinance provides two great benefits: the first is that by refinancing you lock in a fixed interest rate that is generally 1% to 2% lower than the one you received when you consolidated, or if you only needed one student loan while in school, refinancing allows you to lock in a fixed rate instead of playing roulette with the variable interest rate most student loans only offer.

Not everyone can refinance

College loan refinancing is not always an option for people. This is essentially because interest rates are not always low; thus, you may have to wait years before it becomes beneficial to you to refinance your student loan. You should also be aware that unlike the ease of acquiring a student loan, not everyone can qualify for college loan refinance. In order to qualify you have to have good credit and have made your monthly loan payments on time. If this doesn't describe your then you will probably have to wait until you've taken some time and steps towards fixing your credit.

Longer repayment periods when refinancing

Now before you go rushing out and applying for college loan refinance you should be aware of one potential downside—just a tiny one. Many people who refinance can save as much as 60% per month on their payments. That can transfer into a huge chunk of disposable income; however, while this is nice in the short term you should be aware that it will cost you more in the long term. The lower interest rate is not necessarily what saves you money in the short term, it is the extended amount of time you're given to repay the loan after refinancing, which can be as long as 20 years! This is something to consider, especially if you're only five or 10 years away from paying off the loan.