There are different types of debt. While most debt is usually considered as ‘bad debt’, there is a certain debt type that is still considered by many to be a good debt and that is student debt. What makes student debt different from most debt types is that instead of taking out a loan in order to pay for an emergency expense, an electricity bill or some other outstanding bill, a person takes out a student loan to be able to afford a college education. Therefore, that student debt is a sort of self-investment. But what exactly is student debt? Can it actually be considered as a good debt, or is the current reality quite different? How can you get rid of your student debt? You will find the answers to these questions in the article below.
What is student debt
A student debt is a loan that college applicants take out in order to be able to pay for their educational costs. We live in an economic environment where for young people, it is almost impossible to afford a college education on their own. So if you are in that position and you want to have a successful career, there are not that many options for you. Getting a full scholarship is one of these options. Let’s be honest, that option is not really a viable one for many college student applicants. And so for most people the choice is this: they either have to accept a life without a college degree (therefore a limited path for career development) or they can apply for a student loan and pay for their college education.
Can student debt be considered as good debt?
In some circumstances yes, it can be considered as good debt. That is in case your profession of choice is such that can allow you to quickly repay your student debt once you start working.
However, that is not the case with most people. As most people spend a great amount of money paying for their college education and some of them do not even graduate and are left without a college degree and with a student loan debt to repay. Others do graduate. However, their monthly salary does not allow them to quickly repay their student loan debt and these people continue to repay their student loan debts for the rest of their lives. There are, however some repayment methods that can help even people with multiple student loan debts to pay off their debts in a much quicker manner and regain control of their finances once again.
Can student debt be considered as good debt?
Once you are in a situation where you have one or multiple student loan debts to repay, there is no point in looking back, wondering if taking out a student loan was a right decision or whether such debt can be considered as good or bad. What matters is to find a way to once again be able to have control over your finances. There are different ways that a person can deal with student loan debt, and multiple student loan debts. The most common way of dealing with such multiple debts is with a student loan debt consolidation.
What is student loan debt consolidation?
Student loan debt consolidation, much like most types of debt consolidation, involves combining of your multiple debts into a single monthly payment. With the case of student loan debt consolidation, you shuffle all your current student debts into a brand new, larger student debt consolidation loan. There are two main ways that you can consolidate your student loan debt. You can do it through the Federal department or with a private loan lending company.
Student debt consolidation loans from private loan lenders
Nowadays, there are many private loan lending companies offering student debt consolidation loans that you can choose from. Some of these private loan lenders may even allow you to include your federal student loans into your private student debt consolidation loan. When working with a private loan lending company, usually the state of your credit score has a great impact on your ability to qualify for the loan and the terms of that loan.
Most young people do not have a strong or a long credit history, and if you fall into the same category, your chances of qualifying for a private student debt consolidation loan will be lesser. However, you may be able to get a private student debt consolidation loan by getting a cosigner who has a good credit score to secure your loan and to get you better loan terms, including lower interest rate. When you are taking out a private student debt consolidation loan, there are usually two options for your loan’s interest rate. You either get a private student debt consolidation loan with a fixed interest rate, or you can get one with a variable interest rate.
- Taking out a student debt consolidation loan with a fixed interest rate may mean that you will be getting your consolidation loan with a higher interest rate from the very beginning. While this may sound like a bad thing, and to a certain degree it could be, having a fixed interest rate on your student debt consolidation loans means that, even though that rate may be a bit higher from the start, at least you will know that it is not going to get any higher throughout the whole repayment period of your student debt consolidation loan. That will enable you to have the opportunity to plan your budget for the future and minimize the risks of failed payments. Knowing exactly how much money you will need to pay for the whole debt repayment period leaves no room for unpleasant surprises as it keeps you well prepared for the whole repayment process.
- Taking out a private student debt consolidation loan with a variable interest rate may seem like a good idea at first, given that fact that such loan will normally have a lower interest rate from the beginning of the repayment period. However, since the interest rate is not fixed for the whole period of the loan, it can get higher over time. That means that even though you start with a lower interest rate compared to the interest rate of a fixed-rate student debt consolidation loan, you may end up paying more money on interest in the long run. So in most cases, choosing a fixed interest rate student debt consolidation loan would probably be the smarter choice
Federal student debt consolidation loans
As you may have already guessed, federal student debt consolidation loans are only for federal student loans. By using a direct debt consolidation loan program, you would be able to consolidate any of your federal student loans. However, keep in mind that if you want to include some private student loans in your federal student consolidation loan, you will not be allowed to do so. You are also not allowed to include any loans that have been taken out on your behalf by your parents. Federal debt consolidation student loans have fixed interest rates for the whole terms of the loans, but these interest rates are going to be different for each person based on his specific financial situation. The reason behind this is that the interest rate on your federal student consolidation loan is going to be based on all the interest rates of all the loans that you are going to be consolidating.
Conclusion on student debt consolidation loans
So now that you know the options that you have for consolidating your student loans, is the whole thing even worth it? There is not a completely accurate answer for this question as each person’s financial situation is going to be different. Therefore, for some, consolidating their student loans may be a great tool with a massive positive impact on their overall financial life. For others, it may not really change things much, or if it does, it may not even be in a positive way. After all, the reality of today is that you can no longer expect that by consolidating your student loans, you will be able to save a great amount of money. That is simply because student debt consolidation loans with significantly lower interest rates are in the past, and it is not looking like they will be coming back, at least not anytime soon.
That does not mean, however, that there is no reason to consolidate your student loans. Consolidating your student loans is still a great way to simplify your repayment process, as you will only need to take care of a single monthly bill instead of juggling with multiple debt repayments each month.
Ultimately, how you get out of student debt is up to you. There are different solutions, and consolidating your student loans is just one of them. Before making any big financial decision, it is always better to get as much information as you possibly can in order to make the best possible choice.