Consoldating federal student loans
The desire to improve and protect a credit score is responsible, but it shouldn’t be the first consideration.
The value in a high credit score comes from the ability to secure desirable terms in lending.
One factor that determines credit score is the number of lines of credit that are open.
If consumers have too many, their score will go down.
Some borrowers may actually see their score drop by consolidating or refinancing.
Though federal direct consolidation and private student loan refinancing are very different processes, the impact to a borrower’s credit score is similar.
Most of these changes improve a borrower’s creditworthiness according to the credit bureaus.
Depending upon how the loans are consolidated, it could read that the loans were refinanced or it could just say that they were paid in full. One final advantage of consolidating student loans is that it can often lower your monthly payments.
This helps borrowers who are looking for new lines of credit as it will improve their deb-to-income ratio.
If the credit score is high enough to qualify for a low rate or favorable repayment plans, then the credit score has done its job.
In many cases refinancing or consolidation can save hundreds of dollars per month and thousands of dollars per year.