Student Loan Consolidation
As college tuition costs soar, student debt has risen as well. Consider the following alarming data:
- Over 70% of college seniors graduate with student debt
- The average student loan debt at graduation is around $30,000 per student
(federal and private loans combined, and it has been increasing by 6% every year) - Over 600,000 federal student loan borrowers default on their loans within two years
If you’re having trouble paying down your student loans, debt consolidation can be a good option. The first thing to understand is the difference between Federal Student Loans and Private Student Loans.
Federal Student Loans vs Private Student Loans
The main difference is that only Federal Student Loans can be consolidated into the Direct Consolidation Loan government program. Private Student Loans can't be consolidated with this option. And if you have both private and federal student loans, you can't lump them together under a federal consolidation loan (nor it's a good idea to combine them under a private loan).
Federal Student Loans
- it can be consolidated into a federal Direct Consolidation Loan
- the maximum interest rate for a federal Direct Consolidation Loan is 8.25%
- can offer advantageous repayment, forgiveness and cancellation opportunities
- the interest is tax deductible
More information:
- Federal Student Loan Consolidation - information, pros and cons, options, by the U.S. Department of Education
Private Student Loans
- it can NOT be consolidated into a federal Direct Consolidation Loan
- if you have a good credit score, the initial interest rate might be lower than the federal cap of 8.25%, but be aware of mechanisms that can trigger a future interest rate increase
- be aware of hidden fees and possible scams