Student loan debt accounts for more consumer debt in the United States than credit cards, with over 44 million Americans borrowing an average of nearly $40,000 each. It is an issue that impacts on all demographics and one that only seems to be getting worse, with delinquency at more than 10% and the total national student debt at over $1.5 trillion.
But there are ways you can lessen the damage done by your own student debt, and eventually clear it altogether.
1. Private Student Loan Settlement
Consolidation, or “refinancing”, allows you to consolidate all of your loans into one, including your student loans. For example, if you have credit card debt, a personal loan, and a student loan all eating into your monthly budget and charging varying interest rates, then you can take a consolidation loan, pay them all off, and then focus on paying off that consolidation loan.
This can help even if you have just one or two debts, in which case it becomes more about refinancing as you’re just swapping a high interest loan for a low interest one.
Pros of Private Student Loan Consolidation
- Lower Payments: You can reduce your monthly outgoings, and ensure that you pay less over the course of the loan. In some cases you can save tens of thousands of dollars.
- Easy Payback: All of that extra money in your pocket means it will be easier to pay off your consolidation On the one hand, it’s a significant loan that is larger than the individual ones you paid off, but on the other hand you will have more money and can pay it off quickly and easily.
- Speed: High interest loans can take years and even decades to clear, especially if you have other loans to pay off. With a consolidation loan, you’ll typically pay it off quickly and will be debt free before you know it.
- Improved Score: In the long-term your credit score will improve, leaving you in a much better situation.
- Easier to Manage: Not only is it cheaper and better for you, but it’s also much easier to manage as you only have one payment to focus on. This may lead to fewer missed payments and less stress.
Cons of Private Student Loan Consolidation
- Credit Score: Your credit score will take a hit as you will need to open another credit account. This is a short-term hit as it will improve once you pay off the other accounts, but it can be quite damaging.
- Criteria: If you don’t have a good credit score and you’re not making a lot of money then it can be difficult to get a consolidation loan with a good interest rate. You may be able to use a co-signer though.
2. Federal Student Loan Consolidation
Federal student loan consolidation works in a similar way to private loan consolidation, only you can’t bundle non-student loans into the package, you won’t save a huge deal of money, and everything is done through the Department of Education.
It’s refinancing, and the goal is to help you create a payment plan that makes your loans easier to manage. On the plus side, federal student loans typically have lower interest rates to begin with and by going through a refinancing plan they may be even easier to manage. On the flip side, the ultimate goal is not to reduce your outgoings, bring your total debt down or to save you money.
3. Student Loan Forgiveness
There are a number of student loan forgiveness programs that could help you escape the clutches of student debt. But before you get excited and start thinking that there is a magic wand you can wave to make those debts disappear, you need to meet certain criteria and you also need to have federal loans and not private loans.
If you meet some of the following criteria and have federal student loans then you may be able to get some or all of your loans forgiven. However, there is no guarantee:
- You work in the public sector—in most cases you need to have made many payments and be working full-time.
- You are a qualified teacher—you need to have worked in a qualifying school and must have acquired your loans after 1998.
- You are a nurse or doctor—you must be qualified and licensed, and you also need to be working full time.
- You are in the military—there are a number of forgiveness programs for many sectors of the armed forces, including the National Guard and Reserves.
- You are a lawyer—there are a few programs that can help qualified lawyers working in the public sector for a number of years.
You cannot use debt settlement programs to payoff federal student loans, but you can use them to payoff private ones. Debt settlement is the best option cases where the loans are too much, repayments have been missed, and other issues have resulted. Debt settlement essentially reduces the cost of the debt with the knowledge that it will be paid off straight away.
This can benefit both the debtor and the lender, but a skilled and experienced debt settlement company is needed to negotiate such a deal.