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Student Loan Consolidation, Know Your Facts

According to studentdebtrelief.us, student loan debt is reaching an all-time high over $1.5 trillion. More importantly is that the average student loan is over $37k, with almost 60% of graduates having loan debt.  However, more concerning is that Forbes estimates that over 1 million students are defaulting on their debt every year! At that pace, as much as 40% of all student loans could be in default by 2023. 

CNBC.com suggests that the problems stem from students getting lower paying jobs, some students aren’t graduating so they lose the income benefits of a degree, or students have too much debt to service besides just their loans.  Many studies suggest that the student loan debt crisis is going to be the next major financial problem facing our country!!

In an effort to help lower payments or help tackle this problem, many people are exploring loan consolidation.  There are many things to consider, because the right decision depends on the specifics of your loan and your current financial situation.  Also, it’s important to remember that there are differences between federal loans (those issued by the government) and private loans (issued by banks, credit unions, etc), so we will discuss some things to consider:

Benefits of Private Student Loan Consolidation:

  • Better control- consolidating makes it easier to track & keeps payments simple
  • Lowers payments- making it more affordable
  • Access to better rates- with improved credit you could get you better interest rates
  • Help Defaults- payments with lower rates can help you stay in good standing

Drawbacks of Private Student Loan Consolidation:

  • Lose benefits like loan forgiveness or payment deferment options
  • Higher rates– could cause higher rates & paying more over long -term with interest
  • Variable loans– May offer low introductory rate but increase over time

Federal Loan Consolidation Benefits

These loans can be consolidated in a Direct Consolidation Loan program which can lower your payments by giving you a longer time to repay your loan, possibly up to 30 years. Also, these loans are traditionally fixed, avoiding future increase. According to finaid.org (a great resource to financial aid information website), you could be eligible for deferments based on other things like unemployment or economic hardship. 

** Remember that forbearance can also temporarily allow postponement of your payments but understand that process thoroughly. Also, understand the terms of all your options.

Drawbacks of Federal Loans Consolidation

A lower monthly payment time may cost a lot more in payments because of the interest. You could also lose the benefits associated with resetting your original loan, such as student loan forgiveness, flexible payment plans, or types of loan cancellations. Finally, it’s important to understand what happens with any grace period provisions, because there are rules and penalties for adhering to them.

A few last things to consider:  

Federal loans include many Direct & Federal Stafford subsidized and unsubsidized loans, Plus loans, Supplemental Student loans, Perkins, Federal Nursing & Health Education Assistance loans. Also, the U.S. Department of Education has a lot of valuable information on federal loan consolidation, what to consider and how to apply.

You can’t consolidate private loans with a Federal Direct Consolidation Loan. If your loans is in default, then you must meet certain requirements before consolidating.

According to StudentAid.gov (another great resource website), you need to continue making payments until your consolidation and Direct Consolidation Loans can be applied for at Studentloans.gov.

Federal PLUS loans with your parents can’t be consolidated with other federal loans, so you need to find a Private loan consolidation company that accepts federal loans. Remember, you may lose your payment options by doing this. However, if going this route still makes sense then explore Discover Student Loans because of the number of repayment options they offer. 

Doing Private Consolidation Loans, credit score, income and current interest rates are important with conditions and requirements vary per private lender.

Some loan debt forgiveness options depend on joining the military, performing active service, certain work fields, volunteering, or specific locations.  

Other websites and information on student loan debt is available from credible.com, thesimpledollar.com, or NerdWallet.com

Pat Moran is managing partner and founder of Healthier Money, a premier provider of guaranteed income, reduced risk and layers of protection from the unexpected. He can be reach at (602) 571-1035 or pat@healthiermoney.com

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