Student loan debt is one of the major issues America is facing today. According to the Federal Reserve, the total national student loan debt now exceeds $1.5 trillion. It’s now one of the biggest debt categories in America.
While there are programs such as student loan consolidation and refinancing, a lot of people are challenged with paying up their student loans even after graduating.
According to Time, the growing student loan debt crisis causes a lot of individuals to struggle with procuring necessities like groceries and with paying rent. Time has also mentioned how student loan debt hinders people from purchasing a home, a different career opportunity and with starting a business.
There are even cases where some people work all their lives just to pay off their student loan debt. According to Investopedia, a lot of college students are inexperienced with money and as a result, they mismanage how they use them.
Moreover, while student loans are words all too familiar, a lot of people don’t know the best strategies in dealing with them. Some end up paying higher interest rates and some miss payments because of having multiple due dates.
There are different different ways on how you can deal with student loans. One of which is through student loan consolidation. Here is everything you need to know about student loan consolidation.
Before we get into everything, there are some things you first have to know. There are two types of loans you can choose from in getting student loans:
It’s important to know what these two are as each have their pros and cons. The benefits of federal student loans is that it has fixed interest rates. This means that you pay the same amount of interest rate until you are through with paying off your student loans.
Some federal loans can also be subsidized. When federal loans are subsidized, it is the government that pays for you while you are still studying or in deferment. With federal student loans, you can also have different payment plans.
It offers income driven payment plans and you can also qualify for loan forgiveness programs that are offered by the federal government.
On the other hand, private student loans are offered by:
On average, private student loans have a higher interest rate. However, it is not need-based which means you can apply for a greater loan amount. As for the interest rate, if you have an excellent credit score, you can qualify for lower rates.
For a lot of private student loans, you pay with a variable interest rate. This means that the rates can increase as the federal rate increases. Moreover, no private student loans are subsidized.
It’s also less forgiving as with private student loans, there’s lesser options for repayment. Private student loans can’t be forgiven and you also can’t qualify for income driven repayment plans. For some private student loans, they require you to begin paying while you’re still in school.
To consolidate your student loans is to combine them all together into one big federal student loan. Note that just federal loans can be consolidated. The main points of student loan consolidation is to make payments easier and less expensive.
For most students, they can receive their loans from multiple federal loan programs. This means that a student has to pay for multiple student loans, each with their own due date, payment amount and interest rate.
This is one of the main reasons why a lot of people miss a student loan payment. According to Federal Student Aid, more than 3 million borrowers were behind or delinquent for at least a month on their federal direct loans.
To consolidate student loans is to take out one huge consolidation loan to pay off all your other student loans. This means that you then just have to pay for one lender each month. The consolidated loan would still have a fixed interest rate.
According to Debt, “the rate is derived by taking the average of the interest rates on all federal loans and rounding the rate up to the nearest one-eighth of a percent.” It may not lower interest rates but it keeps the options for forgiveness and all repayments open.
One more thing you should remember with loan consolidation is that with it, there are no do-overs. You can just consolidate one time. Student loan refinancing is another strategy for paying off student loans.
It has some similarities with student loan consolidation but the sameness of student loan consolidation and refinancing begins and ends with turning multiple student loans into one big loan.
With student loan refinancing, you can have lower interest rates. However, if you refinance student loans with a private lender, you lose certain benefits such as loan forgiveness, loan deferment, forbearance and income driven repayment plans.
Both student loan consolidation and refinancing are excellent loan payment programs. But regardless of what you choose, to consolidate or refinance, make sure that your choice benefits you.