Consolidating student loans

A good way to help ease the burden of student loans is to consolidate them into a single loan. Find out how it works, and if loan consolidation is a good choice for you.

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CONSOLIDATING STUDENT LOANS

Let’s take a look
at a few of the pros and cons

of consolidating your student loans.
CONSOLIDATING STUDENT LOANS

If you have multiple student loans,
STUDENT LOAN

consolidation can offer some
simplicity to your repayment.

Essentially what happens
when you consolidate
BANK

is that all of your original loans
are paid off by your lender

and replaced with a single
new loan with new terms.
STUDENT LOAN

And you can often
get a lower monthly payment
0, 10 YEARS, PRINCIPAL, INTEREST

because you will have
a longer repayment period—
0, 25 YEARS

so there are some
trade-offs to keep in mind.

Let’s look at an example of
getting a federal consolidation loan—
FEDERAL CONSOLIDATION LOAN
GOV

you can also get
a private consolidation loan
PRIVATE CONSOLIDATION LOAN
BANK

if you have private loans,
but we’ll get to that in a minute.

Let’s say you have fifty
thousand dollars in federal loans.
$50,000 FEDERAL LOANS

Fifteen thousand dollars
in subsidized loans
SUBSIDIZED, $15,000 PRINCIPAL

at a three point five
percent interest rate,
@3.5% INTEREST

and then two
different unsubsidized loans:
UNSUBSIDIZED

a loan of twenty thousand dollars
$20,000 PRINCIPAL

with a four percent interest rate,
@4% INTEREST

and a loan of fifteen thousand dollars
$15,000 PRINCIPAL

with a five percent interest rate.
@5% INTEREST

Now as you can see,
BILL

keeping track of these
loans might get complicated—

especially if you’re making
payments to different loan servicers.
BANK

Entering these numbers
into the loan calculator
LOAN CALCULATOR, YOUR LOANS
SUBSIDIZED LOAN, UNSUBSIDIZED LOANS

at studentaid.ed.gov—
CALCULATE, $500/MO

on a standard ten-year repayment plan,

you’re going to be paying a little
over five hundred dollars a month.
STANDARD 10-YEAR REPAYMENT PLAN
$145/MO, $200/MO, $155/MO
$500/MO

Over ten years,

you’ll pay about
eleven thousand dollars
$11,000 INTEREST

in interest on your original
principal of fifty thousand dollars.
$50,000, ORIGINAL PRINCIPAL

Now let’s say you want
to consolidate these loans.

Under your new loan terms,

your loans will be consolidated
into one fifty thousand dollar loan—
$50,000 FEDERAL LOANS

and you’ll have one
new fixed interest rate,
15000 X 3.5, 20000 X 4.0, 15000 X 5.0

which is determined
by taking the weighted average

of the interest rates
on your previous loans,

and rounding up to the nearest
207500 ÷ 50000

one eighth of one percent.
@4.15% INTEREST

In this case, that’s
four point two five percent.
@4.25% INTEREST

Now, entering your loan information
into a loan consolidation calculator,

you’ll find that
consolidating your loans
CONSOLIDATED LOAN
REPAYMENT PLAN

gives you a new repayment period,
$50,000 PRINCIPAL, 0, 25 YEARS

which is figured based
on the amount you owe–

the more you owe, the longer
this repayment period will be.

It can vary from ten to thirty years,

but in this case it’s going
to be twenty five years.

And your new monthly payment will
be about two hundred seventy dollars.
$270/MO

That’s a lot less than
the five hundred dollars a month
STANDARD 10-YEAR REPAYMENT PLAN
$500/MO

you would have spent on
a standard ten-year repayment plan.

But, paying two hundred seventy
dollar per month for twenty-five years

means you’ll be
paying a total of about

$81,250 TOTAL

eighty one thousand two hundred fifty
dollars over the life of your loan.

Subtract your original
fifty thousand dollars,
- $50,000 ORIGINAL LOAN

and you’ll see you’re paying over
= $31, 250 TOTAL INTEREST

thirty one thousand
dollars in interest,

compared to the
eleven thousand dollars
$61,000 TOTAL
- $50,000 ORIGINAL LOAN

you’d pay on the
standard ten-year plan.
= $11,000 TOTAL INTEREST

So while simpler
and lower monthly payments

might give you some
relief in the present,

the trade-off is that it can
cost you a lot more over time.
$81,250 TOTAL, $20,250 MORE
$61,000 TOTAL

You’ll also have new loan terms.

STUDENT LOAN

This means that you may
miss out on some of the repayment

benefits you might have been
eligible for on your previous loans,

like interest free
deferment on subsidized loans
INTEREST-FREE DEFERMENT
DEFERMENT, SUBSIDIZED, 0, 1

or loan cancellation
for special circumstances.
LOAN CANCELLATION
DEFERMENT, PRINCIPAL

But if you do decide
to consolidate your loans,
CONSOLIDATED LOAN PAYMENT

it's good to keep in mind that
you always have the option
ADDITIONAL PAYMENTS

of paying more
than your monthly payment

which can save you money over time,

while still having
the flexibility of not
THE FULL AMOUNT ON STANDARD
10-YEAR PAYMENTS

having to make the higher
monthly payments

that you would have
on a standard ten-year plan.

But everyone's situation is different.
BILL, PAST DUE, TOTAL AMOUNT DUE

If you're struggling to make
payments on your original loans,

you might consider repayment options
PAYCHECK

other than loan consolidation,
like an income-based repayment plan.
INCOME-BASED REPAYMENT

Or if you run into a financial
hardship and need short-term relief,

you might consider
deferment or forbearance.
DEFERMENT OR FORBEARANCE

Now, if you have private
student loans,
STUDENT LOAN
PRIVATE CONSOLIDATION LOAN, BANK

you also have private
loan consolidation options.
PRIVATE LOAN CONSOLIDATION

They work much like
a federal consolidation loan,
$20,000 PRINCIPAL, @5% INTEREST
$15,000 PRINCIPAL @ 5.8% INTEREST

except they also take into account
$10,000 @ 6.75% INTEREST
$5,000 PRINCIPAL @ 7% INTEREST

your credit score
when determining your interest rate.
300, 850, BAD, FAIR, EXCELLENT
$50,000 PRIVATE LOANS @5.4% INTEREST

So if you have a lower credit score,

you might be looking at
a higher interest rate.
@6.5% INTEREST RATE

If you’ve just left school,
CREDIT SCORE 550

you probably haven’t had the chance
to build up a good credit history yet,

so with private consolidation
PRIVATE LOAN CONSOLIDATION
LOWER MONTHLY PAYMENT

you might get a simpler,
lower monthly payment,

but you could end up
paying more in combined interest.
MORE COMBINED INTEREST

But if you happen
to have a steady job
and have built up a good credit score,

you might be able
to get a lower interest rate

from another lender than
your current private loans,
@5.4% INTEREST

so it might be worth looking into.

So while loan consolidation can make
your monthly payments simpler
MULTIPLE LOANS
LOAN CONSOLIDATION,

if you have multiple loans
with different interest rates,
STUDENT LOAN @ 5.8% INTEREST
@5% INTEREST, @5.8% INTEREST
@6.75% INTEREST, @7% INTEREST

you could end up paying a lot more if
you extend your repayment period.
A LOT MORE

But by comparing the pros and cons
of each repayment plan available,
REPAYMENT PLANS

you’ll be able to find out
which option is right for you.

BETTER MONEY HABITS®
BANK OF AMERICA WITH KHAN ACADEMY
BETTERMONEYHABITS.COM

THE MATERIAL PROVIDED ON THIS VIDEO IS FOR INFORMATIONAL USE ONLY AND IS NOTE INTENDED FOR FINANCIAL OR INVESTMENT ADVICE. BANK OF AMERICA AND/OR ITS AFFILIATES ASSUME NO LIABILITY FOR ANY LOSS OR DAMAGES RESULTING FROM ONE’S RELIANCE ON THE MATERIAL PROVIDED. PLEASE ALSO NOTE THAT SUCH MATERIAL IS NOT UPDATED REGULARLY AND THAT SOME OF THE INFORMATION MAY NOT THEREFORE BE CURRENT. CONSULT WITH YOUR OWN FINANCIAL PROFESSIONAL WHEN MAKING DECISIONS REGARDING YOUR FINANCIAL OR INVESTMENT MANAGEMENT. ©2017 BANK OF AMERICA CORPORATION.

CONSOLIDATING STUDENT LOANS

Let’s take a look
at a few of the pros and cons

of consolidating your student loans.
CONSOLIDATING STUDENT LOANS

If you have multiple student loans,
STUDENT LOAN

consolidation can offer some
simplicity to your repayment.

Essentially what happens
when you consolidate
BANK

is that all of your original loans
are paid off by your lender

and replaced with a single
new loan with new terms.
STUDENT LOAN

And you can often
get a lower monthly payment
0, 10 YEARS, PRINCIPAL, INTEREST

because you will have
a longer repayment period—
0, 25 YEARS

so there are some
trade-offs to keep in mind.

Let’s look at an example of
getting a federal consolidation loan—
FEDERAL CONSOLIDATION LOAN
GOV

you can also get
a private consolidation loan
PRIVATE CONSOLIDATION LOAN
BANK

if you have private loans,
but we’ll get to that in a minute.

Let’s say you have fifty
thousand dollars in federal loans.
$50,000 FEDERAL LOANS

Fifteen thousand dollars
in subsidized loans
SUBSIDIZED, $15,000 PRINCIPAL

at a three point five
percent interest rate,
@3.5% INTEREST

and then two
different unsubsidized loans:
UNSUBSIDIZED

a loan of twenty thousand dollars
$20,000 PRINCIPAL

with a four percent interest rate,
@4% INTEREST

and a loan of fifteen thousand dollars
$15,000 PRINCIPAL

with a five percent interest rate.
@5% INTEREST

Now as you can see,
BILL

keeping track of these
loans might get complicated—

especially if you’re making
payments to different loan servicers.
BANK

Entering these numbers
into the loan calculator
LOAN CALCULATOR, YOUR LOANS
SUBSIDIZED LOAN, UNSUBSIDIZED LOANS

at studentaid.ed.gov—
CALCULATE, $500/MO

on a standard ten-year repayment plan,

you’re going to be paying a little
over five hundred dollars a month.
STANDARD 10-YEAR REPAYMENT PLAN
$145/MO, $200/MO, $155/MO
$500/MO

Over ten years,

you’ll pay about
eleven thousand dollars
$11,000 INTEREST

in interest on your original
principal of fifty thousand dollars.
$50,000, ORIGINAL PRINCIPAL

Now let’s say you want
to consolidate these loans.

Under your new loan terms,

your loans will be consolidated
into one fifty thousand dollar loan—
$50,000 FEDERAL LOANS

and you’ll have one
new fixed interest rate,
15000 X 3.5, 20000 X 4.0, 15000 X 5.0

which is determined
by taking the weighted average

of the interest rates
on your previous loans,

and rounding up to the nearest
207500 ÷ 50000

one eighth of one percent.
@4.15% INTEREST

In this case, that’s
four point two five percent.
@4.25% INTEREST

Now, entering your loan information
into a loan consolidation calculator,

you’ll find that
consolidating your loans
CONSOLIDATED LOAN
REPAYMENT PLAN

gives you a new repayment period,
$50,000 PRINCIPAL, 0, 25 YEARS

which is figured based
on the amount you owe–

the more you owe, the longer
this repayment period will be.

It can vary from ten to thirty years,

but in this case it’s going
to be twenty five years.

And your new monthly payment will
be about two hundred seventy dollars.
$270/MO

That’s a lot less than
the five hundred dollars a month
STANDARD 10-YEAR REPAYMENT PLAN
$500/MO

you would have spent on
a standard ten-year repayment plan.

But, paying two hundred seventy
dollar per month for twenty-five years

means you’ll be
paying a total of about

$81,250 TOTAL

eighty one thousand two hundred fifty
dollars over the life of your loan.

Subtract your original
fifty thousand dollars,
- $50,000 ORIGINAL LOAN

and you’ll see you’re paying over
= $31, 250 TOTAL INTEREST

thirty one thousand
dollars in interest,

compared to the
eleven thousand dollars
$61,000 TOTAL
- $50,000 ORIGINAL LOAN

you’d pay on the
standard ten-year plan.
= $11,000 TOTAL INTEREST

So while simpler
and lower monthly payments

might give you some
relief in the present,

the trade-off is that it can
cost you a lot more over time.
$81,250 TOTAL, $20,250 MORE
$61,000 TOTAL

You’ll also have new loan terms.

STUDENT LOAN

This means that you may
miss out on some of the repayment

benefits you might have been
eligible for on your previous loans,

like interest free
deferment on subsidized loans
INTEREST-FREE DEFERMENT
DEFERMENT, SUBSIDIZED, 0, 1

or loan cancellation
for special circumstances.
LOAN CANCELLATION
DEFERMENT, PRINCIPAL

But if you do decide
to consolidate your loans,
CONSOLIDATED LOAN PAYMENT

it's good to keep in mind that
you always have the option
ADDITIONAL PAYMENTS

of paying more
than your monthly payment

which can save you money over time,

while still having
the flexibility of not
THE FULL AMOUNT ON STANDARD
10-YEAR PAYMENTS

having to make the higher
monthly payments

that you would have
on a standard ten-year plan.

But everyone's situation is different.
BILL, PAST DUE, TOTAL AMOUNT DUE

If you're struggling to make
payments on your original loans,

you might consider repayment options
PAYCHECK

other than loan consolidation,
like an income-based repayment plan.
INCOME-BASED REPAYMENT

Or if you run into a financial
hardship and need short-term relief,

you might consider
deferment or forbearance.
DEFERMENT OR FORBEARANCE

Now, if you have private
student loans,
STUDENT LOAN
PRIVATE CONSOLIDATION LOAN, BANK

you also have private
loan consolidation options.
PRIVATE LOAN CONSOLIDATION

They work much like
a federal consolidation loan,
$20,000 PRINCIPAL, @5% INTEREST
$15,000 PRINCIPAL @ 5.8% INTEREST

except they also take into account
$10,000 @ 6.75% INTEREST
$5,000 PRINCIPAL @ 7% INTEREST

your credit score
when determining your interest rate.
300, 850, BAD, FAIR, EXCELLENT
$50,000 PRIVATE LOANS @5.4% INTEREST

So if you have a lower credit score,

you might be looking at
a higher interest rate.
@6.5% INTEREST RATE

If you’ve just left school,
CREDIT SCORE 550

you probably haven’t had the chance
to build up a good credit history yet,

so with private consolidation
PRIVATE LOAN CONSOLIDATION
LOWER MONTHLY PAYMENT

you might get a simpler,
lower monthly payment,

but you could end up
paying more in combined interest.
MORE COMBINED INTEREST

But if you happen
to have a steady job
and have built up a good credit score,

you might be able
to get a lower interest rate

from another lender than
your current private loans,
@5.4% INTEREST

so it might be worth looking into.

So while loan consolidation can make
your monthly payments simpler
MULTIPLE LOANS
LOAN CONSOLIDATION,

if you have multiple loans
with different interest rates,
STUDENT LOAN @ 5.8% INTEREST
@5% INTEREST, @5.8% INTEREST
@6.75% INTEREST, @7% INTEREST

you could end up paying a lot more if
you extend your repayment period.
A LOT MORE

But by comparing the pros and cons
of each repayment plan available,
REPAYMENT PLANS

you’ll be able to find out
which option is right for you.

BETTER MONEY HABITS®
BANK OF AMERICA WITH KHAN ACADEMY
BETTERMONEYHABITS.COM

THE MATERIAL PROVIDED ON THIS VIDEO IS FOR INFORMATIONAL USE ONLY AND IS NOTE INTENDED FOR FINANCIAL OR INVESTMENT ADVICE. BANK OF AMERICA AND/OR ITS AFFILIATES ASSUME NO LIABILITY FOR ANY LOSS OR DAMAGES RESULTING FROM ONE’S RELIANCE ON THE MATERIAL PROVIDED. PLEASE ALSO NOTE THAT SUCH MATERIAL IS NOT UPDATED REGULARLY AND THAT SOME OF THE INFORMATION MAY NOT THEREFORE BE CURRENT. CONSULT WITH YOUR OWN FINANCIAL PROFESSIONAL WHEN MAKING DECISIONS REGARDING YOUR FINANCIAL OR INVESTMENT MANAGEMENT. ©2017 BANK OF AMERICA CORPORATION.

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