Student loan debt in the U.S. is one of the hottest topics in the news today; unfortunately with some pretty mind-boggling statistics.
In 2014, student loan debt surpassed credit card debt in the nation with borrowers owing more than $1.272 trillion in educational loan debt.
One in ten recent borrowers has defaulted on their federal student loans within the first two years of repayment, according to the US Department of Education.
And, an unfortunate and troubling side effect: this crushing student loan debt is limiting the housing recovery’s momentum by undermining an entire generation of potential buyers.
Not the best of news, to say the least.
If you’re one of the 53 million borrowers looking for student loan debt solutions, you’re far from alone. The long-range solution to this growing problem is complicated at best. However, there are options. Student loan refinancing and consolidation are currently available to help ease the burden of repayment. Let’s see what might work best for you.
Student Loan Debt Relief Alternatives
There are five main options for student loan debt relief:
Loan consolidation through a private lender or the federal student loan consolidation program.
Student loan refinancing through private lenders.
Seven different education loan repayment plans, which are based on the borrower’s personal financial circumstances.
Deferment or forbearance of loans for financial hardship.
Loans that are forgiven, canceled, or discharged.
Make sure you carefully research all your options, and weigh the pros and cons before taking action. Generally, these alternatives are better than defaulting on your student loans.
Student Loan Consolidation
Student loan consolidation is a program that students and parents can use to combine educational loans of different types and with different interest rates into a single loan with one interest rate. Both federal and private student loan consolidation options are available with the ultimate objective of making educational loan repayment less complicated and more convenient for borrowers. Note that parents can consolidate educational loans taken on the student’s behalf but cannot consolidate with the student into a single consolidation loan. Make sure you carefully consider the possible advantages and disadvantages before making a decision.
Private Student Loan Refinancing or Consolidation
Essentially one and the same, the terms “consolidation” and “refinancing” are used interchangeably by many private lenders. Students have the option of refinancing or consolidating both federal and private student loans through private lenders such as banks, credit unions, and financial service companies. Private lenders may be able to offer considerably lower rates through student loan financing than those available through the federal loan consolidation program.
Private lenders can offer low fixed rates and even lower variable rates for student loan refinancing. Individual lenders may have a wide range of different borrower requirements for student loan refinancing or consolidation. Many offer interest rate loyalty discounts to existing customers and additional discounts if you set up automatic payments, hoping to attract new customers who are young and college educated, according to a recent article in the Wall Street Journal.
Federal Student Loan Consolidation
The Federal Direct Loan Consolidation Borrow Services website lists more than 20 educational loans eligible for federal student loan consolidation. Private educational loans cannot be consolidated through the federal program.
There are no application fees or repayment penalties to apply for a Direct Consolidation Loan. Repayment begins 60 days after disbursement. The length of the repayment period is dependent on the total amount of the consolidation loan and the selected repayment plan but generally ranges from 10 to 30 years.
The interest for a Direct Consolidation Loan is calculated using a weighted average of the interest rates for all loan included. The consolidation loan interest rate will generally fall between the lowest and highest interest rates of all educational loans included.
Lower Student Loan Payments
If you experience temporary financial hardship, The Department of Education offers a number of options for lowering monthly loan payments. Deferment and forbearance are available to borrowers during this time. This can help you with long-term reduction of your monthly payments.
The Department of Education offers a variety of repayment plans that extend the repayment period and reduce monthly payments to meet specific borrower financial needs. Borrowers should be aware, however, that increasing the term of the loan repayment means more payments and more interest paid. Borrowers can use the Department of Education repayment estimator to help calculate monthly payments under these repayment plans.
Student loan refinancing or consolidation through a private lender or loan consolidation through the federal student loan consolidation program can also lower monthly payments.
Student Loan Borrower Choices
No matter which debt relief alternative a borrower chooses, the most important thing is to completely understand each choice and its pros and cons thoroughly before moving forward with the application process. More detailed information about student loan repayment options is available on this website, on the Department of Education consolidation and loan repayment websites, and through individual private lender websites.