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.

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

Get More Money Girl!

If you're ready for help managing debt, building credit, and reaching big financial goals, check out Laura's private Facebook Group, Dominate Your Dollars! Request an invitation to join this growing community of like-minded people who want to take their financial lives to the next level.

To connect on social media, you’ll find Money Girl on FacebookTwitter, and Google+. Also, if you’re not already subscribed to the Money Girl podcast on Apple Podcasts or the Stitcher app, both are free and make sure that you’ll get each new weekly episode as soon as it’s published on the web. The show is also on the Spotify mobile appClick here to sign up for the free Money Girl Newsletter!

Download FREE chapters of Money Girl’s Smart Moves to Grow Rich

Education Financial Saving image © Shutterstock


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 frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlers is her newest title. Laura's previous 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.