Student Loan Debt Consolidation 101

Congratulations, grad! You made it through the four years (or more) of hard work and have earned a higher degree. As you embark on your exciting new career, remember to complete one of your last college assignments – paying off your student loan debt. If the amount of student loan debt you carry makes you feel overwhelmed, you’re not alone. Student loan debt has been cited as the top concern for Millennials, and for good reason, according to the Federal Reserve, student loan debt hit 1.5 trillion for the first time in Q1 2018. The average student loan debt for recent classes is about $37,000. One way to reduce your burden is to bank with your brain and consolidate your student loan debt into a single loan.

Student Loan Debt Consolidation

College is expensive, which is why many students and parents take out a variety of student loans, both from the government and private lenders. Consolidating your student loan debt is the process of combining all your loans into a single new loan. When you consolidate debt, you will get a new loan with new terms and a single monthly payment. This makes paying off student loan debt a little less painful.

There are two student debt consolidation options to consider, depending on the types of student loans you need to pay off. To know what’s right for you, first you’ll need to know what types of student loans you currently have, and the terms of the loans.

Here are some questions to help you get started:

Do you carry federal government student loans, like the Stafford Loan or Perkins Loan?
Do you have private student loans from a financial institution that aren’t from the government?
What are the interest rates on each student loan?
Are the interest rates variable or fixed? (Hint: Variable interest rates can change during the course of the loan, while fixed interest rates stay the same.)
What are the repayment period terms? (Hint: How fast do you need to pay them off, and when do you need to start paying them back?)

Option 1: Direct Consolidation Loan Program

If your student debt consists solely of federal government loans with fixed rates, you may want to consider the government’s Direct Consolidation Loan program. This program allows borrowers to continue to qualify for some terms of the original loans, like being able to defer initial loan payments until after graduation or qualifying for lower monthly payments.

Option 2: Consolidate Student Loans

Do you have a combination of private and federal student loans? Or maybe older student loans with higher or variable interest rates? Look into student loan consolidation from a private lender like University Credit Union. At UCU we have been helping grads consolidate their student loan debt for a few years now. Start the process by using our student loan debt consolidation calculator and then we would love to chat with you to discuss your options.

Benefits of Student Loan Consolidation

Consolidation can help you get ahead financially in several ways.

Lower, fixed interest rates: Interest rates might have dropped since you originally obtained your student loans. Consolidation allows you to take advantage of those lower rates. Also, replacing variable-rate loans with a fixed-interest loan eliminates the risk of a future interest rate jump, which can increase your monthly payments without notice.
Reduce monthly payments: The repayment period for most student loans is 5 to 20 years. Through consolidation, you may be able to extend the repayment period, which typically reduces your monthly student loan payment. The catch, of course, is that you end up paying more in interest because your term is longer.
Customize repayment schedule: Some private loans allow you to tailor your monthly payments to your current income and gradually increase your payments over time. This can be a great option if you are just getting started and earning an entry-level salary but expect to earn a higher income in the future.
One monthly payment: Rolling your student loans into one payment helps you keep tabs on the total owed and the progress you’re making.

Student Debt Forgiveness

The William D. Ford Direct Loan Program (FDLP) allows for flexible repayment schedules based on incomes, but actual student loan forgiveness is rare. Graduates who pursue public service careers can have their loans forgiven after 10 years of payments. And low-wage earners who make payments for 20 years may have the remainder of their debt forgiven. But the truth is, most college graduates must repay every borrowed dollar.

For many college graduates, student loan consolidation makes sense. The good news is that if you consolidate your loans with UCU, you can earn 1% more in dividends in your Checking Account! Feel free to contact us to learn more.