Once considered as a type of self-investment, student loans are turning into one of the biggest financial problems in the United States of America today. The overall amount of student debt in the country is constantly on the rise and it does not look like things are about to change for the better any time soon. The truth is that student loans have become an essential part of the lives of most young adults who are looking for a better career path.
What is a student loan?
Student loans are a type of unsecured loans that normally young people take in order to fund their college education. The truth is that nowadays, it is almost impossible to get a college degree without taking out such loan. As we all know, having a good education boosts your chances of having a successful career. So many people are taking out such loans with the idea that they will be able to repay them within a few years with their good monthly income. However, the reality is quite different. Many of these people do not get the income that they had imagined they would get, and repaying their student loan debts becomes a bigger task than expected. In fact, many people continue to repay their student loan financial obligations for a very long time. However, many of them are carrying more than a single student debt, and with that, their situation gets even tougher.
What can you get rid of multiple student loans?
Repaying multiple student financial obligation can be an extremely hard thing to do. People are often desperate to find a way out of their tricky financial situation.The most popular way of dealing with multiple educational loans is with a student loan debt consolidation.
Student loan debt consolidation
A student loan debt consolidation, much like most types of debt consolidation, allows you to combine multiple financial obligations into a single monthly bill. There are mainly two types of student loan debt consolidation – a private and a federal educational loan debt consolidation. Even though these two processes are often confused due to their similarities, they are actually quite different from each another.
Private student financial obligation consolidation
The private educational loans financial obligation consolidation is also referred to as college loan refinancing. This is a financial move that you do by using the services of a private loan lending company. By applying for such consolidation with a private loan lending company, you may be able to save a significant amount of money by getting better loan terms, including a lower interest rate. Whether you would be able to qualify for such terms or not will depend on many different factors. One of these factors is your credit score. If you do not have a perfect, or at least a good credit score, you will most likely find it really hard to qualify for a college debt consolidation with better terms than the ones that you already have on all of your loans.
Federal college loan debt consolidation
This service is a financial method for getting rid of multiple college debts by using services through the Department of Education. Federal student loans are probably the most beneficial and easiest way to consolidate college financial obligations. This is because they used to often offer lower interest rates, reduced monthly payment, and of course because you get a single monthly payment instead of the many that you are taking care of. Nowadays, it is not that easy to get a lower interest rate with a federal student financial obligations loan. However, that does not mean that it is not possible.
Should you consolidate your student loans?
If you only wish to make your repayment process more simple, you may want to explore some of the many available student federal loans consolidation plans. With such programs, you will not be able to lower the interest rate on your loans. The interest rate on your bill is going to be determined by the average interest rate of all of the college loan debts that you are consolidating. In case you decide to go with a private loan lender company for consolidating your educational financial obligations, you may be able to get better loan terms, including a reduced monthly payment and a lower interest rate. This will mainly depend on the state of your credit score. Meaning that if you have perfect or at least a decent credit score, you will most likely be able to qualify for such terms with a private loan lending company. Having a good source of monthly income will also improve your chances of qualifying for a lower interest rate college loan consolidation.
Pros and cons of college debt consolidation
If you are unsure whether consolidating your multiple college financial obligations is the right move for you, here are some of the main pros and cons that this type of service has to offer:
Student financial obligation consolidation pros
The average number of student loans that many young people of the United States are carrying is around seven, from normally at least three different loan lending companies. This can often be an extremely heavy burden for a young person to carry on his shoulders. Keeping track of all those bills can often be quite stressful and exhausting. By consolidating your multiple college debts, you would only need to think about a single monthly payment with a single loan lending company.
Better loan terms
By consolidating your multiple student financial obligations, you may be able to lower the overall interest rate that you are paying, as well as to reduce your monthly payment. Both of these can result in an improvement in your credit score, which can ultimately make you a more attractive borrower to the loan lenders.
You will be able to choose between fixed or variable terms
With a federal college loan consolidation, you would be getting fixed terms for the whole repayment period of your consolidation loan. By using the services of a private loan lending company, you can get variable terms, and you just have to hope that the state of the economy will not get significantly worse and your rates will not go straight through the roof.
No need for co-signer
You would be able to let your relatives off the hook if they have co-signed any of your loans, and take care of the responsibility all by yourself.
College debt consolidation cons
As much as such service can give you some quite attractive benefits, there are also some reasons why you should avoid using this financial method for dealing with multiple bills.
You may end up paying more money
Even though you may be able to get a reduced monthly payment, and will definitely like to have a single bill instead of many, you may actually end up paying more money over the long run as your debt repayment period will most likely be extended.
You may already have good rates on your loans
If you already have some decent terms on your multiple college loans, you may not actually need to consolidate them as it may only cost you more money to do so.