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  • Student Loan Refinancing vs. Consolidation

    Juggling multiple student loans with different interest rates and loan servicers can be a challenge. Refinancing and consolidation are two options, but which is suitable for you? When you consolidate, the Department of Education pays off your existing federal loans and replaces them with a Direct Consolidation Loan. Your new interest rate is calculated based on the weighted average of your previous rates rounded to the nearest one-eighth of a percent.

    Lower Interest Rates

    There are many reasons to consider refinancing a student loan. The primary reason is that it can lower your interest rate. A study by loan marketplace Credible found that borrowers who chose to refinance their loans through the company saw their interest rates drop by 2.29 percentage points, saving them an average of $16,943 over the life of their new loan.

    The lower rate can also reduce your monthly payments. However, the length of your loan term will also change, which may result in you paying more in total interest.

    Loan consolidation combines your existing federal student loans into one loan with the federal government. The federal government offers a single fixed interest rate that’s the weighted average of the rates on your original loans, rounded up to the nearest 1/8%. You can only consolidate federal student loans, not private ones.

    Federal consolidation is beneficial for borrowers with multiple federal loans who are not currently in income-driven repayment plans or for those with public service loan forgiveness (PSLF). Consolidation can make your loans eligible for these programs by lowering your monthly payment to 5% of your discretionary income.

    Private student loan refinancing can offer benefits such as reduced monthly payments, improved terms, and lower interest rates, but it’s only suitable for some. It’s best to pursue this option only if your credit score is high enough, you can afford your payments, and you’re comfortable giving up federal benefits like income-driven repayment and PSLF.

    Should I consolidate or refinance my student loans?

    Lower Monthly Payments

    The newest income-driven repayment plan saves and lowers monthly payments by requiring borrowers to pay just 5% of their discretionary income, down from the 10% other plans need. Depending on the plan, these plans also have a forgiveness feature after 20 or 25 years of qualifying payments.
    Generally, however, loan consolidation only saves borrowers money on interest by combining their current loans into a single Direct Consolidation Loan. The new interest rate is a weighted average of the original loan rates, which means borrowers won’t see any immediate savings on their interest rates.

    It’s worth noting that there are better options than federal loan consolidation for everyone. Those who’ve applied for PSLF, earned a cosigner, or used a loan deferment could lose those benefits if they consolidate their federal debt through a Direct Consolidation Loan.

    Those looking to take advantage of federal debt relief programs should consider alternatives to refinancing, like applying for an income-driven repayment plan or seeking public service loan forgiveness. This is why borrowers must compare the available options before making financial decisions.

    Extend the Term of Your Loan

    During the consolidation process, your private lender will consider your creditworthiness (which includes your income and debt-to-income ratio) to determine whether you’re eligible for a new, lower rate or reduced payment. Typically, lenders require mid-600s credit scores and a stable income source for eligibility.

    While refinancing can help make your private loans easier to manage by reducing the number of bills and due dates, it’s important to understand that your new, lower rate may come with an extended loan term, increasing the total amount you pay over time.

    Before applying, it’s a good idea to plug your loan information into a refinance calculator like SoFi’s to see your savings based on your current rates and terms. Prequalifying with a few different lenders to shop around without making a hard credit inquiry is also helpful.

    Student Loan Consolidation vs. Refinancing

    No Credit Check

    The good news is that federal student loan consolidation doesn’t require a credit check. If you have federal loans, your Direct Consolidation Loan program eligibility isn’t dependent on your credit history.

    That said, the new interest rate on your consolidated loan is likely to be slightly higher. That’s because your interest rate is a weighted average of the rates on your original loans, rounded to the nearest one-eighth percent. You may also have a longer loan term with a Direct Consolidation Loan, which could result in more interest paid over the life of your loan.

    Private lenders can offer a similar experience to the federal program, but they’ll evaluate your application using a credit check. That means you could find a lower interest rate with refinancing, which can help reduce your monthly payment. You can choose between a fixed or variable interest rate with a private lender.

    While both student loan refinancing and consolidation can make your debt payments more manageable, it’s important to determine your goals before taking action. Student loan refinancing may be the right choice if you want to save money, lock in a lower rate, and shorten your loan term.


    When deciding between student loan refinancing and consolidation, it is crucial to consider your financial goals, loan types, and eligibility for federal benefits. Refinancing can be advantageous if you have a strong credit score and want to secure a lower interest rate, potentially saving thousands over the life of your loan. On the other hand, consolidation through a Direct Consolidation Loan can simplify your payments by combining multiple federal loans into one.

    Buried in Debt? Contact The Pope Firm Now!

    The Pope Firm offers comprehensive loan consolidation and Refinancing solutions tailored to your needs, including bankruptcy services for Chapters 7, 11, and 13. Whether you’re looking to declare bankruptcy in Tennessee or determine if you qualify, our experienced team will guide you every step of the way. Contact Us Now!

    Should I refinance my student loans?

    If you need assistance with personal or business bankruptcy and filing in Tennessee, reach out to The Pope Firm and Charles Pope, Attorney At Law.

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    Frequently Asked Questions

    Bankruptcy occurs when an individual, business, or other entity declares the inability to repay its debts. If you file for bankruptcy, that means that debt collectors must pause attempting to collect debts from you. Bankruptcy often allows you to erase most, if not all, of your debts.

    There are two types of debts, unsecured and secured. Some examples of unsecured debts are credit card bills, medical bills, or taxes. Secured debts can include car loans or mortgages, which use the purchased item as collateral. In many cases, filing for bankruptcy can keep this collateral protected and prevent foreclosure of your home or repossession of other assets.

    Bankruptcy is governed by federal legislation under the Bankruptcy Code, which falls under the greater United States Code. Both federal law and local law inform the bankruptcy procedure. Federal bankruptcy judges, appointed by the United States court of appeals, preside over court proceedings in these cases. In court, the judge and a court trustee, review your finances to determine whether or not to discharge the debts at hand.

    Each state has one or more bankruptcy courts. Tennessee has six bankruptcy courts throughout the state.

    Filing for bankruptcy can be a daunting process, and working with a firm with expertise in the field can provide you with necessary guidance.

    There are several types of bankruptcy. Most individuals, married couples, and small businesses choose to file under Chapter 7 or Chapter 13.

    What are the Differences Between Chapter 7 and Chapter 13?

    The primary difference between these two types is that Chapter 7 bankruptcy allows an entity to fully discharge its debts in a short period. A Chapter 13 bankruptcy involves reorganizing debts and creating a plan to repay those debts over an allotted time. After that time, Chapter 13 eliminates most of the remaining debts.

    Chapter 7 bankruptcy is typically filed by those with very limited income and unsecured debts, the most common of which is medical bills. Chapter 13 bankruptcy is most often filed by higher income bracket individuals and those with more assets, such as a car or a home. The motivation for filing Chapter 13 bankruptcy is often preventing assets from being repossessed or home foreclosure due to outstanding debts.

    What Other Types of Bankruptcy Are There?

    Two other types of bankruptcy are Chapter 11 and Chapter 12.

    Chapter 11 primarily applies to larger companies and corporations, but sometimes it is the right choice for small businesses as well. Chapter 12 applies to those who are considered family farmers.

    Various considerations get factored into who should file bankruptcy. Filing bankruptcy may be the right choice for you if you are overwhelmed by debt. Regardless of what type of bankruptcy you file, as soon as the process begins, you are granted an automatic stay. A stay is an injunction that prevents creditors from collecting any debts for an allotted time. An automatic stay halts the process of, for example, foreclosing on a home or repossessing a vehicle.

    A Chapter 7 bankruptcy will discharge most of your debts. Filing Chapter 7 is appropriate for those who make less than the median household income in Tennessee and whose assets would not be at risk. In this situation, your non-exempt property is sold to pay off creditors.

    Chapter 13 bankruptcy allows you to create a plan to repay your debts. If you have non-exempt property used as collateral in secured loans, you can restructure your finances to pay off any relevant debts over the next three to five years. Chapter 11 functions in a similar way, but is exclusively for businesses.

    Filing for bankruptcy can provide a fresh start for those bogged down with debt, either by restructuring finances or discharging debts entirely.

    How bankruptcy affects business depends upon the type of bankruptcy filed.

    Chapter 11

    Businesses classified as corporations, partnerships, or LLCs can file Chapter 11 bankruptcy. Chapter 11 allows for debt restructuring, while the business stays open. As in Chapter 7 and Chapter 13, an automatic stay activates as soon as your bankruptcy period begins. In an automatic stay, creditors cannot try to collect money or other assets from you.

    During this period, you work with your lawyer to restructure your debts and develop a plan to get your business back on track. This plan must be approved by some of your creditors and a bankruptcy court to go forward. You will be able to repay your debts over several years.

    Chapter 7

    Filing Chapter 7 bankruptcy discharges all of your business’s debts by liquidating your assets. The entire process can be completed quickly, often in several months. Chapter 7 allows for the discharge of most debts, excluding government taxes and fines.

    Chapter 13

    Only individuals can file for Chapter 13 bankruptcy. Thus, although businesses cannot file, you can file Chapter 13 as the sole proprietor of your business.

    When you decide to begin the bankruptcy process, the first step is to find a lawyer who is an expert in filing bankruptcy in Tennessee. Hiring a bankruptcy lawyer can indeed be expensive, but it is worth the cost. This professional can guide you through what type of bankruptcy is best for your situation and what to expect throughout the process.

    • Collect your documents: It is important to have everything from your paystubs to your credit report available before starting.
    • Take the means test. This test will determine if you are eligible for Chapter 7 bankruptcy and help guide you in making a repayment plan for Chapter 13 bankruptcy.
    • Meet with a credit counselor. In the state of Tennessee, most individuals must meet with a credit counselor from an approved provider before filing for bankruptcy.
    • Fill out bankruptcy forms. If working with a lawyer, you can expect they will use online programs to help you file your paperwork.
    • Pay your filing fee. It costs $335 to file for bankruptcy in Tennessee. Waiver of the fee is possible in some cases, but it is uncommon. However, it is possible to pay the fee in several installments instead of the entire balance upfront.

    Declaring bankruptcy wipes out many debts, but not all.

    What Debts are Usually Covered by Bankruptcy?

    Bankruptcy can clear most unsecured debts, including:

    • Credit card bills
    • Medical bills
    • Overdue utility payments

    Bankruptcy can also clear many secured debts, but it depends on whether you file for Chapter 7 or Chapter 13 bankruptcy. For Chapter 7, you will have to give up any non-exempt items you put up for collateral. For Chapter 13, they will become part of your repayment plan.

    What Debts Are Not Covered by Bankruptcy?

    • Child support
    • Alimony obligations
    • Those related to personal injury or death in a drunk driving case
    • Any debts not listed on your bankruptcy papers

    No type of bankruptcy covers these debts. If you file for Chapter 7, they remain outstanding. Under Chapter 13, you pay these debts along with your other debts.

    What Debts May Be Covered?

    Bankruptcy rarely covers student loan debt. However, it may be in some cases with proof of undue hardship.

    Tax debt is also rarely covered, but bankruptcy may cover certain old unpaid taxes.