Student loan consolidation may help you save money, but that’s not always the case. Many factors determine how much you save, if anything.
Using a student loan consolidation calculator can help you determine if a consolidation loan makes sense or if you should figure out other options to handle your student loan debt to save the most money.
How a Student Loan Consolidation Calculator Works
A student loan consolidation calculator helps determine if consolidating your loans makes sense. Spoiler alert, it’s not right for everyone.
Using a consolidation calculator that considers your monthly payments, interest rates, and time left on the loan term can help you determine if you’ll save money.
There are two student loan consolidation programs to consider – private and federal student loan consolidation. Understanding how each works can help you choose the right option.
Types of Student Loans Consolidations
The type of student loans you have determine the type of student loan consolidation that’s best. If you have both federal and private student loans, you can consolidate private loans separately from federal or together. Using a student loan consolidation calculator will help you determine the right choice.
Private Student Loan Consolidation
Private student loans are from private banks or lenders. They aren’t backed by the Department of Education and have different requirements or benefits than federal loans.
When you consolidate private student loans, you essentially refinance them. In other words, you pay off your existing private student loans with a new loan with a different interest rate and/or terms.
Federal Student Loan Consolidation
Federal student loans work differently. For example, they are backed by the Department of Education and have different benefits, such as income-driven repayment plan options or the potential for student loan forgiveness.
You lose those benefits if you consolidate or refinance your federal education loans with a private loan from a bank or lender.
However, if you keep the federal student loans and instead apply for a consolidation loan through the DOE, you wrap all federal education loans into one loan with an interest rate that’s the weighted average interest rate of all federal student loans you’re including.
What Student Loan Calculators Can Tell You
Student loan calculators can help you learn a lot about your student loans, including the following.
Number of Payments Before Your Final One
If you wonder how much time you have left on your student loans, a student loan payoff calculator can help. Enter the outstanding principal balance and required monthly payments to determine how much time you have left.
You can also play with the numbers and see how extra payments toward your student loans can help you pay the loans off faster. Calculating loan repayment with a higher monthly payment will also show how much interest you’ll save.
Payment Amount With a New Interest Rate
If you’re toying with a private consolidation loan, consider using a school loan payment calculator to see the new monthly payment with your new interest rate. This also works with a federal student loan calculator. If you know the weighted average interest rate of your federal student loans, you can determine your new payment amount if you consolidate federal student loans.
Terms of a New Loan
If you’re consolidating private student loans or combining private and federal loans, you may have an option for different terms.
You can play with the terms to calculate loan repayments to determine the most affordable term. However, pay close attention to the amount of interest you’ll pay over the loan term and the loan’s total cost. The longer the term you take, the more interest you’ll pay, which may make your consolidation loan more costly.
Consolidation Savings Amount
Most importantly, the educational loan calculator will help you determine the savings you’ll incur with a consolidation loan. This helps you see the big picture, allowing you to determine if private or federal student loan consolidation makes sense.
Uses of a Student Loan Calculator
Student loan calculators can help you make important decisions about the future of your student loans, including how to calculate student loan payoff.
Student Loan Consolidation Calculator
A student loan consolidation calculator helps determine if a consolidation loan makes sense for your financial situation. It compares your loan types, balance, interest rate, and term (in years) to a consolidation loan’s new payment.
Student Loan Consolidation and How It Works
When you consolidate student loans, you combine all loans into a single loan. This can make it easier to keep track of your payments and, if possible, save you money on interest. You could get out of student loan debt faster if you get a lower interest rate or shorter term.
Student Loan Payment Calculator
A student loan payment calculator helps you determine the cost of your student loans based on information provided to you. For example, if you know the fixed interest rate for the year you’re attending school for federal student loans, you can use a student loan payment calculator to determine how much your payments will be when your loans are no longer in deferment.
Student Loan Payoff Calculator
A student loan payoff calculator can help you determine the best plan to pay your student loans off quickly, with the least interest.
If you have federal college loans, use the federal student loan repayment calculator to determine which plan works the best and to see if a consolidation loan makes sense for your situation. They offer many opportunities to play with the numbers and compare loan options to determine what works best.
What Is a Student Loan Payoff?
Student loan payoff is when you get to celebrate that you’re student loan free! The payoff date is when you make your final payment or the date you’re eligible for student loan forgiveness because you’ve satisfied its requirements.
Student Loan Interest Calculator
A student loan interest calculator helps you determine how much interest you’ll pay for student loans. While the interest rate is important as it determines your monthly payments, the term plays an important role too. If you play with the terms on the student loan interest rate calculator, you’ll see how a shorter term can save you thousands of dollars in some cases.
Who Should Consolidate Their Student Loans
There are many reasons to consolidate student loans. The most common, however, is to minimize the confusion of managing multiple student loan payments. With one payment, you can track what you owe, not miss payments, and possibly make extra payments to pay the loan down faster.
If you decide student loan consolidation is right for you, here’s what you must know.
Necessary Documentation for Consolidation
Depending on the type of consolidation loan you apply for, you’ll likely have to prove you can afford the loan with the following documentation:
- Income documents: You must prove you can afford the loan by providing W-2s, 1099s, and tax returns for the past couple of years.
- Asset statements: Your bank or investment statements prove you have the money to repay the loan, even if your income changes.
- Proof of employment: Lenders may require contact information for your employer to verify your employment.
Consolidation Wait Period
You are free to apply for loan consolidation at any time after you’ve received your student loans. If you’re eligible for a lower interest rate or find a more attractive loan, you can take advantage of it immediately.
Keep in mind that if you apply for federal student loan consolidation, it could take four to six weeks from the application date to complete the process.
Risks of Consolidating Student Loans
A consolidation loan may seem like a great idea, especially if you can get a lower interest rate, but there are downsides to consider:
- You may lose progress toward a loan forgiveness plan – If you were working your way toward Public Service Loan Forgiveness but consolidated your loans, you could lose the progress made on your payments. If you must start over or lose eligibility, you must pay the full loan amount.
- You could lose federal protections – The Department of Education provides certain protections for student loan borrowers, including the option for an income-driven repayment plan, deferment, or forbearance during difficult financial times. You lose those protections if you consolidate your loans with a private lender.
- You may pay more interest – If you take a longer-term for your consolidation loan, you may pay more interest because it will take longer to repay the debt. A student loan consolidation calculator can help you determine if this is the case.
Ways to Consolidate Student Loans
If you don’t want the weighted average interest rate on your federal student loans and are sure you don’t need federal protection from the DOE, here are some other options to consolidate student debt.
Use a Personal Loan
A personal loan is an unsecured loan from a private lender. You can apply with your current bank, any other local bank, or even online banks. Personal loans don’t have a specific use, so you can use the funds for anything, including paying off student debt.
Use Home Equity
If you’ve built equity in your home, you may use it to pay off your student loans. Before doing this, make sure the interest rates make sense. Use a student loan consolidation calculator to ensure the total interest you’ll pay by wrapping the debt into a longer-term home equity loan won’t greatly increase the amount of interest you pay.
Use a Credit Card Balance Transfer
If you have credit cards with high credit limits and low interest rates, you may consider using them to pay off your student loan balance. However, this only works if your balance is low enough and if you have private student loans. You cannot pay off federal student loans with a credit card.
Even with private student loans, you may have to get creative with paying the loan off, as most loan servicers won’t accept a credit card payment because of the fees charged to them. Stores pay the fees, but financial services typically won’t. To get around this, you may use a convenience check or cash advance on your credit card to pay the debt.
Use Funds in Your Retirement or Savings Accounts
If you have funds saved and don’t need them immediately, you might consider paying off your student debt to save on interest.
Before doing this, be sure to keep enough money untouched to cover emergencies. At a minimum, leave three to six months of expenses set aside. If you use retirement funds, be sure there is enough time to repay the funds you’re using, plus the interest or earnings you’d miss, so you stay on track for retirement.
Consider a Debt Management or Repayment Plan
A final option is to talk to your loan servicer about a repayment plan. Some private loan lenders offer repayment or debt management options even if you don’t have federal student loans. The last thing they want is a defaulted debt, so a payment arrangement usually works better.
Best Student Loan Repayment Option
The best student loan repayment option is the one that allows you to pay your loan off the fastest with the least amount of interest. But, of course, this won’t look the same for everyone else, so there isn’t a one-size-fits-all approach.
Look at the big picture and find the option that allows you to save the most money while keeping your payments affordable.
Use a Loan Simulator to Plan Your Loan Repayment
If you’re wondering how to attack your student loans, consider using a loan simulation to see the different scenarios.
Be realistic with the information you enter to get a realistic view of what student loan payoff could look like for you.
Accuracy of a Student Loan Simulator
Of course, these simulators always have room for error, so take the information with a grain of salt. In addition, the information provided should never be considered financial advice but instead a guide to help you reach your financial goals.
Where to Find a Student Loan Repayment Calculator
There are many student loan repayment calculators available today. Consider trying a couple to get the best idea of how to handle your student loan debt.
What Does It Mean to Default on a Student Loan?
Every loan has different parameters before they consider a loan defaulted. In the case of student loans, if you haven’t made a payment for at least 270 days, they consider it defaulted because you didn’t abide by the agreement you signed.
What Happens if I Default on My Student Loan?
If you are in default on your student loans, the loan servicer can take several actions, including the following:
- Garnish your wages
- Keep your future tax refunds
- Report the default to the three credit reporting agencies
How Do I Know if My Debt to Income Ratio (DTI) Is Too High?
An average debt-to-income ratio should be around 43% or less. If your debts take up much more than this amount, it’s likely too high and can make it difficult to cover the daily cost of living and necessary savings.
How Much Could Refinance or Consolidating Student Loans Save Me?
There isn’t a certain amount a consolidation loan or refinancing can save you. Instead, it depends on many factors, including your loan term, interest rate, and what you can afford.
What Is the Difference Between Refinancing and Consolidating a Student Loan?
When you refinance a student loan, you pay the old loans off with a new loan. When you consolidate, you wrap all federal loans into a single loan with a weighted average interest rate. Both have the same result – one student loan to pay monthly, but if you refinance, you could lose federal loan protections.
Can You Refinance a Consolidated Student Loan?
You can refinance a consolidated student loan with a private student loan or even a personal loan. If you have great credit, you may qualify for a lower interest rate or better terms and save more money.
Final Thoughts: Using a Student Loan Consolidation Calculator
A student loan consolidation calculator can help you determine the best way to repay your student loans faster and save money. It’s not always smart to consolidate loans, as it depends on the terms of your current loan, current interest rates, and what you can afford.
Using a college loan calculator is the first step in determining if you should consolidate student loans, but always consider the total interest paid, what you can afford, and what you’re giving up to make the student loan payments to get out of debt.
Samantha Hawrylack is a personal finance expert and full-time entrepreneur with a passion for writing and SEO. She holds a Bachelor’s in Finance and Master’s in Business Administration and previously worked for Vanguard, where she held Series 7 and 63 licenses. Her work has been featured in publications like Grow, MSN, CNBC, Ladders, Rocket Mortgage, Quicken Loans, Clever Girl Finance, Credit Donkey, Crediful, Investing Answers, Well Kept Wallet, AllCards, Mama and Money, and Concreit, among others. She writes in personal finance, real estate, credit, entrepreneurship, credit card, student loan, mortgage, personal loan, insurance, debt management, business, productivity, and career niches.