There are many different types of debt that people end up carrying. While most debt types are considered to be ‘bad’ debt, there is a certain debt type that it is actually good debt, since it serves as a kind of self-investment.
You have most likely heard about student loan debt. There are still some things that you may not know, so without further ado, let’s get into what a student loan debt actually is.
What is a student loan debt
Student loan debt is an amount of money on a loan that has been taken out to pay for educational costs. The reality of the college education these days is not that great. College educational expenses have gotten so high that it is almost impossible for many people to afford to go to college without taking out a student loan.
Student loan debt in-depth explanation
What makes student loans more appealing compared to other loan types is that by taking out such loans, you are basically borrowing money to invest in yourself. Getting a better college degree often enables you to pursue a better and more fulfilling career, and of course, to earn a significantly higher income. All these positives can make the student loan feel like a worthwhile financial investment. However, not all is pretty with student loan debts. There are many cases where student do take out student loans and are still able to finish their college education. And also, there are some students who take out a bigger student loan amount than they can realistically pay back with the career path that they have chosen. Another bad thing about student loans is that in many cases, people take out student loans at a very young age where they may not completely understand the seriousness of what they are doing. Adding to all that, student loan debt is a bit different from other debt types in the way that it usually cannot be discharged in bankruptcy, that is unless there is an undue hardship. If you are able to get a job and work on a regular basis while you are in college, or if you are able to obtain a scholarship and going to an in-state, public university, you may be able to minimize the need for taking out a student loan. You may also want to know that graduates who work for a specified number of years in a public service professions, and who also make a minimum amount of debt repayments may be eligible to have all their student loan debt, or at least some of it, forgiven, that is if the student loan debt is in the form of a direct student loan taken out from the federal government. People who graduate with a federal student loan debt and who can qualify for a special repayment plan, life an income-based repayment, for instance, may also have their student loan debt balance forgiven after they have made payments for the last 20 – 25 years. That of course, depends on the specific program.
Student loan debt consolidation
While student loan debt consolidation is not a 100% solution that it has been in the past, it is still able to offer a number of different benefits depending on the specific situation that you are in. For starters, if you are dealing with a number of student loan debt payments, a student loan debt consolidation may make your life a lot easier by simplifying your finances. If you choose to consolidate your student loans, you will be combining all of them into a brand new, larger loan. That means that you will only have a single monthly payment to pay and to keep track of, instead of battling with multiple student loan debt repayments. That alone can help you avoid any late payments. By consolidating your student loan debts, you may also be able to get better terms for your student debt consolidation loan, including a lower fixed interest rate. However, since things have changed a lot in the last decade or two, many things to be considered when deciding whether to consolidate your student loans or not. Whether a student loan debt consolidation can actually save you some money, have no effect at all, or whether it can have an overall negative effect on your finances.
Some important student loan debt consolidation considerations to keep in mind
Here is a simple summary of some of the important things you should keep in mind when considering a student loan debt consolidation:
- One of the best reasons to choose a student loan debt consolidation is to keep yourself organized. If even the fact that consolidating your student loan debts will allow you to focus on a single monthly payment instead of having to stress over multiple student loan debt repayments, and if this is going to help to make your payments always on time, then consolidating your student loan debts can definitely be a good choice for you.
- You need to know that if you want to consolidate federal student loans that have been issued after 2006 using a federal student debt consolidation loan, that will not save you any money. This is simply because any federal student loans issued after 2006 have already gotten fixed interest rates. You may still be able to lower your student loan debt monthly payment by extending the length of your loan debt repayment period. However, this is likely to cost you more money in the long run.
- If you choose to consolidate your student loan debts with a private loan lending company, you may be able to save money or it may cost you money. That generally depends on what loan terms you would be able to get, especially what interest rate. In order to qualify for a student debt consolidation loan with good terms (including lower interest rate), you would normally need to have a good credit score (the other option is to have a cosigner with a good credit score). Getting a variable-rate student debt consolidation loan will have a lower interest rate from the start. However, that interest rate may change over time and get higher. If you get a student debt consolidation loan with a fixed interest rate, even though that interest rate will be a bit higher, at least you would know that it is going to stay the same throughout the whole debt repayment period, and will not end up costing you more money at the end.
- All in all, it is better that you stay away from private loan lending companies unless you are able to qualify for some unbeatable loan terms. If that is not the case, you probably should not consolidate your federal student loan debts with a private loan lender. Getting a federal student loan can give you a number of benefits that private loan lending companies simply do not offer.
Advantages and disadvantages of student loan debt consolidation
Generally, there are some pros and cons of consolidating student loan debts.
Student loan debt consolidation advantages
One of student loan debt consolidation biggest benefits is convenience. That of course, depends on the number of loans that you need to take care of each month. Being able to focus on a single monthly payment instead of having to keep track of multiple loan repayments can definitely make your life a lot easier, and can relieve you of some of that stress you are going through each month. Especially if you are a new student and you are not quite settled with all the monthly payments and overall management of your finances.
- By consolidating your student loan debts, you may be able to choose a plan that best fits your specific financial situation
- Lastly, by consolidating your student loan debts into a single loan payment, you will be able to lower your total monthly payment. That can leave some cash that you can use to meet your actual needs, instead of giving all your money for repaying your student loan debts.
Student loan debt consolidation disadvantages
One of student loan debt consolidation cons is that you may end up paying more money over the whole repayment period of the loan. If you choose to lower your monthly payments, that will most likely mean that you will be lengthening your total repayment period, therefore, you will pay more money overall.
- Even though consolidating your student loan debts may enable you to choose between different repayment plans, it can also make other plans or benefits unavailable to you. This may include loan forgiveness, different interest-rate discounts, deferment options and forbearance.
- To consolidate your student loan debts often means that you will be locking in your interest rate. This action can be both a pro and a con. That depends on what the interest rates are and also whether your student loans have already have fixed interest rates or not.