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Tag: Debt Consolidation

  • Federal Student Loans Are Choking People

    Federal Student Loans Are Choking People

    Here is a startling statistic that you may not be aware of. Outstanding student loans have surpassed credit card debt in this country. They stand at $1 Trillion. The Federal Reserve has determined that this level of debt keeps borrowers from buying homes, saving for retirement, and engaging in consumption that helps drive a healthy economy.

    Senator Elizabeth Warren argues that the Federal government is using student loans as a money-maker. This year, the federal government will make $34 billion on student loans. The government even makes money on its loans to low-income students – 36 cents, on average, for every student loan dollar it puts out.

    The average student leaves college $29,000 in debt after earning a bachelor’s degree. Then they head out to work at entry-level positions and have to jump right in to paying those loans, right when they should be focusing on starting homes, careers, and businesses.

    Warren has argued that the government should loan money to students at the same rate that it loans to banks, less then 1%. Her bill to forgive student loan chunks and allow for lower interest rates has stalled in the Senate. But proponents vow to keep fighting for it.

    In the meantime, others look for alternatives to help pull their debts down lower. One common alternative is refinancing and consolidation of loans. Students commonly have more than one loan, or perhaps multiple loans in a household. Consolidating those loans through a private lending institution at a lower rate is an attractive offer for some.

    Brendon McQueen, the founder of student loan debt management app Tuition.io explains, “On the federal consolidation side, they take a blended average of your existing interest rates and fold them up into a single federal loan. In certain instances, if you have a loan with an incredibly low interest rate, you may not choose to include that loan in your consolidation package because it would affect the interest.”

    In other words, treat this debt like any other. Look for better interest opportunities and take them when you can find them.

    Whether an answer comes from legislative channels or through market possibilities, everyone agrees that student loans are strangling people just as they come out of higher education and try to take their place in society.

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  • Debt Consolidation Can Help Those Burdened By Student Loans

    Debt consolidation isn’t a term you hear all that often outside of financial circles. After all, why would a young student have to worry about lumping their debt together? For the student with thousands of dollars in debt across different loans, debt consolidation may just be the way to go.

    As students graduate from college, they’re more than likely to be looking for ways to reduce their debt or their payments. One way to do that is debt consolidation. Instead of paying on multiple loans, the student only has to pay for one loan. This means lower monthly payments, but it’s not all sunshine and rainbows. Here’s a breakdown of the pros and cons from American Education Services.

    Pros:

  • Lower monthly payments
  • One bill, one lender
  • No prepayment penalties
  • A fixed interest rate
  • No limit to the number of loans that may be consolidated
  • No required minimum balance per federal rules

    • Cons:

  • A longer repayment period
  • More interest to pay back (calculated as the weighted average of all loans and rounded up to the nearest 1/8 of 1%)
  • Possible loss of current loan incentives
  • Loss of deferment subsidy on Perkins loans

    • In essence, debt consolidation is all about looking at your current situation and deciding whether or not more interest is worth lower monthly payments. It shouldn’t be that big of a deal, however, as federal loans are still forgiven after 10 to 15 years of repayment. If lower payments will help you out now, debt consolidation may just be the way to go.

    Here’s a better look at some benefits to consolidation:

    Whether or not you consolidate your debt is up to you. It might just be worth a shot, however, if it can net you lower payments.

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  • Debt Consolidation: Beware of Student Loan Scams

    It seems that just about everyone has student loan debt at one time in their lives, and as far as debt is concerned, that seems to be the kind that holds on the longest.

    If you’re having trouble paying down your student loans, debt consolidation is sometimes the way to go. Wrapping several loans into one can make the payment easier to handle, and sometimes you can get a better interest rate.

    However, experts say that these days the student loan debt consolidation market is ripe for fraud. It is recommended that if you have federal loans, you should always consider consolidating through the federal government’s own programs first, according to MainStreet.

    “Scammers are definitely taking advantage young adults’ needs for student loan repayment options,” says Reyna Gobel, student loan expert for Wisebread.com and author of CliffsNotes Graduation Debt . “If you have Federal student loans, you automatically qualify for free debt consolidation programs offered by the U.S. Department of Education (ED), the agency that oversees federal student loan programs, which offers the best repayment plans and terms on Federal student loans.”

    If you have private loans, it is a good idea to try to work with your lender directly before contacting a student loan consolidation company. By simply calling and asking what your options are to lower your payment, you could avoid dealing with a scammer who may have some pretty harsh tricks up their sleeves.

    Just how common is student loan scamming and why should you be so careful? Surprisingly, it is quite common and widespread. New York Governor Andrew Cuomo announced the creation of a new student protection unit to investigate the student loan “debt relief” industry just last month. Already, the unit has issued 13 subpoenas to student loan debt relief companies for false advertising, unreasonable fees, and enrolling people in programs for a fee which are supposed to be free.

    If you decide to try an outside company, there are a few things to watch for. First, be sure you are the one that contacted them.

    “Chances are, if you didn’t contact them, they are looking to sign you on to collect fees you would not have to pay by going through the Federal Student Loan Consolidation program or even through your own private lender for personal loans, and that’s a scam,” says Gobel.

    Second, a reputable company won’t pressure you to complete the deal. Beware the “expiring interest rate”, “urgent” deadlines, and the like.

    Third, be leery of discounts. Scam companies sometimes promise discounts, only to put conditions on them in the fine print. You may fall into a trap wherein that discounted rate only applies to part of the loan, or goes away after a time. Sometimes the rate is low until you miss a payment, then it skyrockets for the rest of the life of the loan.

    And of course, never, ever, ever give personal info over the phone or email. Ever.

    Again, if you have federal loans always check first with the federal government’s options. They will most likely have the best terms, best rates, and you don’t have to worry about getting scammed.

    Image via Wikimedia Commons