College Loan Debt Consolidation
Obtaining a college degree is more important to getting a good job than ever before. However, the rising cost of college and recent economic troubles mean that many people have had to turn to student loans to get the degree they need. These loans can weigh you down and get the in way of building your life. Moreover, college and student loans can be complicated to deal with, as they are treated differently from other loans.
For example, one of the ways that college loans are distinct from other kinds of loans is that they cannot be discharged in bankruptcy. Therefore, even if you don’t have any money at all and have had to seek legal help to protect you from creditors, you’ll still be on the hook to pay back your college loans. Moreover, college loan servicing companies are some of the most aggressive when it comes to sending people to collections and reporting late or delinquent payments to the major credit reporting agencies. As a result, failure to stay on top of your student loans can create serious financial hardships in your future.
There are many ways to deal with college loans, including different debt relief options. However, one of the most popular solutions for student loan bills that are too high is student loan debt consolidation.
What is Student Loan Debt Consolidation?
Student loan debt consolidation is the process of taking out one large loan and using it to repay your student loans. The loan you take out usually has a lower interest rate than your student loans. Moreover, it packages all of your student loan debt into one easy-to-understand statement. This is vital, as one of the most difficult things about student loans is that each loan you took out usually has a different due date. Therefore, if you went to school for four years and took out a loan each semester, you might have eight different due dates to keep track of. It’s easy to see how this can create a nightmare scenario for many borrowers.
What are the Advantages of Student Loan Debt Consolidation
There are several advantages to consolidating your student loans. We’ve already touched on one of these advantages, simplifying your student loan repayment process. Grouping all of your student loan debt into one statement makes it easier to manage your finances and ensure you have the cash on hand to pay your bills when they become due. Moreover, this can provide a psychological boost, as you can see the progress you’re making against your student loans rather than paying tiny amounts off of each bill where the balance never seems to decrease.
Another advantage of student loan consolidation is that it can lower your interest rates. This is especially true for people who took out private loans to attend college instead of using federally subsidized loans. Private loan interest rates can be incredibly high. With student loan consolidation, you can group all of your loans together with a lower overall interest rate. As a result, borrowers can save tens or even hundreds of thousands of dollars over the course of their student loan repayment.
Student loan consolidation can also improve your credit score. Individuals who owe more than the original balance of their student loans stand to gain the most from this advantage. When you owe more than your loan was originally worth you take a large hit to your credit, as you look like someone who is at a greater risk of default. Consolidating your student loans zeros out these old balances and creates a new balance out of the amount that you had to borrow. You won’t fall behind on this new balance as long as you continue to make regular payments.
Finally, you can use a student debt consolidation loan to provide relief to your co-signer. Many people get their parents or a trusted adult to co-sign their student loans to get a lower interest rate and better chance of approval. However, this co-signing can impact their credit history, as they are responsible for your loans if you don’t pay on time or default. Consolidating a loan can help your co-signer improve their credit score and credit situation by eliminating liability for your student loans.
Can I Qualify for Student Loan Consolidation?
There are some restrictions on who can obtain consolidation for their student loans. First, the type of loan you have matters. Some companies will not consolidate student loans that are held by the federal government. There are federal student loan consolidation options specifically for these types of loans.
Additionally, nearly all of the companies that offer student loan consolidation require a minimum FICO score, level of income, and history of on-time payments. You cannot currently be in default on your student loans and still be eligible for consolidation. Moreover, most companies that issue student loan consolidations require you to have finished your degree. Each company has different qualifications and guidelines, so make sure you carefully read the requirements before you apply for a student loan consolidation.
Are there Drawbacks to Student Loan Consolidation?
Getting a loan to pay off debt sounds great but consolidating student loans isn’t right for everyone. One of the biggest drawbacks is that a student consolidation loan is treated a bit differently than a student loan. The federal government requires student borrowers have access to unique features that consolidation loans aren’t required to have. Some of these features include various repayment plans that adapt to your income. Moreover, student loans are eligible for loan forgiveness under certain situations. However, you cannot use these programs to get forgiveness for a student debt consolidation loan.
There are several advantages to student loan consolidation. However, consolidation isn’t the right choice for everyone. Make sure that the advantages you reap are worth the loss of access to things like loan forgiveness and income-based repayment plans. However, simplifying your loans, reducing your interest rate, and helping out a co-signer are all worthy rewards, and many people who choose to consolidate their student loans are happy with their choice. Use the information in this guide to help you make a decision about how to handle your student debts and start lowering the burden of student loan bills.
Elizabeth is an expert on Debt Consolidation as she provides helpful advice to people who are dealing with debt problems. She graduated college with a BS in Finance. After college, she took a job working at a non-profit debt counseling program. It was at this position where Elizabeth honed her expertise for helping people understand how different financial products work and finding ways to help people pay off their debts.