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The ABC of Student Debt Management: Acknowledge, Budget and Consolidate.
Fifty-five percent of college graduates find that student loan debt makes it difficult for them to fulfill career objectives (College Funding Services, August 2003). Sixty-eight percent of Americans with outstanding student loans say that these loans prevent them from making purchases such as a house or a car (Cambridge Consumer Credit Index, September 2003). It may seem to be a staggering fact that a majority of college graduates enter today’s competitive job market with an average personal debt of $10 to $40K in debt (College Funding Services, August 2003). However, by acknowledging that debt is problem, calculating a realistic repayment budget, and then approaching a reputable student loan consolidator offering lower loan interest rates this debt burden can become much easier to bear for many students.
Student loan consolidation allows recent college graduates, or those within 6 months of graduating, a chance to channel their various college loans into one manageable loan. When a consolidation loan is issued, the lender pays off the outstanding balances of all the loans put into the consolidation. In essence, education debts are refinanced. By refinancing older loans that were issued at high interest rates into one loan calculated using current lower rates, the borrower has an opportunity to save on interest payments. Of course, the frustration of managing many different monthly payments is also relieved.
Student loan consolidation is big business these days. Charity Shumway, a recently graduated New Yorker working in the venture capital industry, received many solicitations from companies offering to consolidate her student loans upon graduation. She had this to say:
“I didn’t really think too much about it at first, but then I kept reading and hearing about how I could lock myself into currently low interest rates if I consolidated. I did a quick search on loan consolidation companies and found one that worked with banks whose names I recognized. I called the toll-free free number with all of my loan information in hand, answered a few questions from an informed loan advisor, and then was told that I qualified for consolidation and how much I could potentially save if I bit the bullet. It turned out that I could drop my interest rate by consolidating, and save even more if I had my payments automatically deducted from my bank account. The advisor ensured me that if I went back to school; the consolidated loan could still be deferred just as it would have been with my current federal loans. The process was pretty painless, and I couldn’t see a real downside. I called my Dad the next day with the details, and he agreed that it was a good idea, so I went ahead and sent in the application, which was pretty easy to fill out. The application is still being processed, but I’m confident everything will turn out great and I’ll save some money.”
Shumway’s story is very similar to many college graduates who have already consolidated their student loans. Individuals that consolidate their student loans before the end of their graduation grace period (before they have to start repaying lenders) can qualify for interest rates as low as 2.625%. This can mean a savings in monthly repayments of up to 60%. Those who consolidate after their graduation grace period expires still can save money, but typically have to pay around 0.6% more in interest. In real terms, the lower rates offered by student loan consolidators can translate into an average saving of $6,000 over the repayment period.
For recent graduates with a reduced repayment capacity, a consolidated loan can also be created with a much longer payback period. Typically, the scheduled repayment period for federal student loans is approximately 10 years. Consolidated loans can extend that schedule out much further. The drawback to extending the scheduled loan repayment is the increased total amount of interest that needs to be paid. Unless absolutely necessary, most applicants are advised to keep the repayment schedule as short as possible.
Typically, there are a few qualifications that must be met before someone is eligible to consolidate their student loans. A qualified applicant must have more than $15K in at least two federal student loans, must have graduated or be within six months of graduating, must not have defaulted on any federal student loans, and must never have consolidated these student loans before.
If you are one of the many American college graduates struggling with career
objectives or delaying capital purchases because of student debt, it is worth
investigating a student loan consolidation program. The faster you act the
sooner your finances could cease being the dominant factor in career and life
decisions and you can look forward to a financially stress-free future.
By Kirk Bangstad
Kirk Bangstad is an Artist Manager and singer working in Chicago, IL. His previous
experience includes consulting for technology companies in the Silicon Valley,
and serving as a field director and publicist for a statewide political campaign.
Kirk holds a B.A. in government from Harvard University, and holds a special
place in his heart for the many student loans he held with him throughout the
years.
Resources:
NextStudent [http://www.nextstudentloans.com/index.jsp]
Sources:
Harris Interactive Survey, August 2003 [attached pdf]
Cambridge Consumer Credit Index, September 2003 http://www.cambridgeconsumerindex.com/archive/press/press_release_0903.pdf
Copyright © QuinStreet Publishing LLC. All Rights Reserved
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