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Should You Refinance or Consolidate Your Student Loans?

Find out the difference between a student loan refinance and a consolidation, who can use them, and the best places to shop if either option is right for you.

By
Laura Adams, MBA
7-minute read
Episode #526

Student Loan Q&A from a Money Girl Podcast Listener

I received a question from Jorge T. who says, "I was a mess with money growing up but now after listening to the Money Girl Podcast and just growing up, I feel motivated and want to get a handle on my student loans that are in default. Can you steer me in the right direction—how should I go about contacting debt collectors about my student loans?"

If you’re struggling with or are already behind on paying federal loans, doing a consolidation with an income-based repayment plan, is a good option.

Thanks for your question, Jorge. The first step is to reach out to the debt collectors and discuss your options. Their contact information should be on any notices that you’ve received by email or regular mail. Or you can find them by viewing your free credit report at annualcreditreport.com, Credit Sesame, or Credit Karma.

As I previously mentioned, if you’re struggling with or are already behind on paying federal loans, doing a consolidation with an income-based repayment plan, is a good option.

If your past due loans are with a private lender, you could work out a repayment plan or negotiate a debt settlement for less than you owe. What’s possible depends on how willing the lender is to work with you.

Settling generally works best when you have a lump sum of cash to pay right away. It’s best for your wallet, but worst for your credit because the account will show as settled for less than agreed. Also note that any amount of debt that’s forgiven in a settlement is considered income and will be subject to taxes.

If you can’t settle for less, most collectors are willing to work out an affordable repayment plan. They’d rather get something from you rather than nothing. This option hurts your credit less than a settlement.

No matter if you settle or arrange a repayment plan, get the agreement in writing from the collector before you send any money. Also, never give a collector your bank account information to draft payments because an unscrupulous company could take more than you wish.

If you have a large amount of past due student debt or it’s very old, I’d consult with an attorney who can help you understand your options based on the terms of your loan and the laws in the state where you live.

See also: Facts You Should Know About Old Debt and Zombie Collections

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a trusted and frequent source for the national media. Her book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show. 

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