Student Loan Debt Consolidation

Student Loan Debt Consolidation- What You Need To Know

About 70% of students graduating from college these days have student loan debt. This debt averages $20,000 for undergraduates and $42,000 for graduate students. In most cases the student will have taken out a number of different student loans during his/her college career, and so it is a common practice to seek student loan debt consolidation.

The first thing you need to know about student loan debt consolidation is that your loans must be paid off some day. Unless you can have your loans forgiven by participating in a government program of public service and have the loans dismissed, you cannot get rid of your debt. Even if you declare bankruptcy neither federally backed student loans nor private student loan debt will be forgiven. That is the law, and you need to understand this up front. Other types of debt, like credit card debt for example, can be dismissed in a bankruptcy proceeding, but that is not the case for student loan debt. Such is the power of the lobbying machine of the student loan industry.

Another thing you need to know about consolidating student loan debt is that you should strive to have your monthly payments be no more than 10% of your pre-tax income. If your payments are higher than that then you are at risk to find yourself owing too much on student loans and you might possibly find that you don’t have enough to pay for your other necessary living expenses. This kind of situation can lead a person to slack off on paying their student loans. This can lead to substantial late payment penalties and in the worst case it can lead to defaulting on the student loan.

Student loan borrowers need to understand that they could be literally ruining their lives if they allow their student loan to go into default. There will be huge penalties, including at least 25% of the total amount borrowed just for collection fees. And with the additional penalties for late payments and default, plus the accrued interest on the loan, many borrowers who default on their student loans are shocked to find out that they now owe 3-4 times the amount they originally borrowed or more. On top of that you will be hounded by collection agencies which can be ruthless. These collection companies are often owned by the student loan companies that lent you the money in the first place. The fact that student loan companies make more money on loans that default than they do on loans that are paid off in a regular fashion should tell you something. They can do this because the government backs the loans, so at default the student loan company collects from the government, and then they start collection proceedings on the loan anyway. And they have the right to garnish your wages and take money from other funds owed to you, such as disability payments or tax refunds. On top of this if you have a professional license it will most likely be taken away by your state if you have a defaulted student loan. So student loan borrowers need to be aware of what can happen to them if they default. It will probably be the biggest mistake they ever made in their life.

People seek student loan debt consolidations for two reasons in most cases. First of all they only need to deal with one payment, and secondly that payment will almost certainly be lower than the total of the payments of the separate loans. Remember, once you consolidate a federal student loan you cannot do it again. You are stuck with the lender and the interest rate for the duration. One strategy might be to consolidate all your student loans but one, especially if you have one loan that is at a decent interest rate and you can handle the extra payment. In that way you might be able to do another student debt consolidation loan later if you get into financial trouble by losing a job, unexpected illness, or for some other unforeseen reason.