Student Loan Debt Consolidation
Consolidating Student Loans to Reduce Monthly Repayments
Oct 20, 2009
A National Post-secondary Student Aid study revealed that the average graduate would need to perform student loan debt consolidation to the tune of $23,186. Unless an individual has a serious medical condition that indefinitely impairs their earning potential, no debt relief program can help. That person would need to prove extreme financial hardship. This means that finding ways to pay off student loan debt is the only current option.
The Scale of Student Loan Debt
Recent evidence from the U.S. Education Department showed that the amount that students borrowed to fund college living expenses and tuition fees has increased over the 2008/2009 academic year to $75.1 billion. It represents an increase of 25% compared to just 12 months earlier. This is clearly because the recession has meant that students and parents aren't in a financial position to cover the costs.
Student Loan Debt Consolidation
Each time that a federal student loan is taken out an additional account is created. This not only means that each account could attract a different rate of interest, it also complicates finances. It is possible to consolidate student loan debt with a private bank loan and make a single, affordable student loan repayment each month. However, it is important to decide whether this is the correct choice.
Consolidating Federal Student Loans
Borrowing money from a bank to consolidate federal student loans isn't always the right move. Student loan interest rates on federal loans are low. For example, Perkins loans attract an APR of just 5% and even unsubsidized Stafford loan charge just 6.8%. Whilst a single student loan repayment simplifies finances, it could increase the cumulative interest paid. It will also mean that student loan debt forgiveness programs are no longer possible.
Private Student Loan Debt Consolidation
Graduates whose student loan debt consists of a higher proportion of private bank loans are vastly more likely to find that consolidating student loan debt will save them money. This is given additional credence by the fact that interest rates have plummeted over the last few years. Try not to lengthen the term in order to reduce the amount of interest that is paid over the life of the loan.
Student loan debt consolidation can help to reduce monthly repayments. However, it is important to compare both the rate and cumulative interest paid over the life of the loan, not just the new and old monthly repayments. Those likely to benefit from consolidating student debt are individuals who have a higher percentage of private, as opposed to federal (Perkins and Stafford), loans.
Sources
Chaker, Anne Marie. (Sept 4, 2009). "Students borrow more than ever for college." The Wall Street Journal.
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