The coronavirus pandemic has only made the nation’s student loan crisis worse. Students and graduates alike are facing an employment shortage. Every week since March, over 1 million Americans have filed a jobless claim.
It is unclear if these jobs will ever return under the cloud of a pandemic. The economy has contracted by nearly 33% and many businesses have permanently closed.
In 2020, the total amount of student loan debt is rapidly approaching $1.6 trillion. More than 45 million Americans currently hold student loan debt.
With so much uncertainty in the jobs market, should I consolidate my student loan is a frequently asked question? Read on for guidance to consolidating student loans. Explore topics such as student loan eligibility and interest rates.
How Bad Is the Student Loan Debt Crisis?
Student loans now rank second behind mortgages as the greatest debt burden on the American people. Every week, 3000 new borrowers default on their student loans. This means that they have been unable to make a payment in more than 270 days.
The United States Department of Education says that over $137 billion of student loans are in default. In a single year, it is not uncommon to see over 1 million borrowers going into default.
The consequences of going into default are serious. Going into default on a student loan is damaging to a borrower’s credit score.
In addition, both the principal and interest become due immediately. You will no longer be eligible for generous assistance programs made available by the lender. This means you can no longer apply for a loan deferment or forbearance period.
In the most serious cases, your tax refund or social security benefits can be garnished. The lender may also elect to take you to court.
What Is the Government Doing to Help Borrowers?
Both federal and state governments implemented stay-at-home orders to battle the coronavirus. These governments required many businesses to stay closed. This resulted in mass layoffs and salary cuts to stay in business.
How are student loan borrowers expected to make payments with reduced salary or no employment? The government provided some short-term relief via the CARES Act.
This legislation placed student loans in a temporary forbearance. It also temporarily reduced the student loan interest rate to 0%. However, these benefits expire at the end of September 2020. Borrowers should start acting now to reduce their monthly payments.
What Does Consolidating Student Loans Mean?
Student loans typically come in many different shapes and sizes. Over the course of college education, a student is likely to receive different types of financial aid.
For example, they may receive both subsidized and unsubsidized student loans. A subsidized student loan means the federal government pays the interest on the loan while you are in school. Also, you might have student loans with different interest rates and origination dates.
A student loan consolidation allows you to pull all these different loans under a single account. Instead of having multiple interest rates and loan terms, everything falls under one account.
What Are the Benefits of Loan Consolidation?
There are many benefits of consolidating your student loans. The primary benefit is reducing your monthly payment.
Payment reduction via loan consolidation is achieved in two different ways. The first is obtaining a lower interest rate than the weighted average of your existing loans.
The second is by extending the loan term. Consider that you have four years left on your existing student loans.
You craft a consolidation package with the lender for a five-year loan term. This will result in a lower monthly payment as the loan principal is spread out over 60 months instead of 48.
There are other secondary benefits in addition to a reduced monthly payment. It can be overwhelming to manage various different student loan accounts. You have to make multiple on-time payments per month or risk a negative impact on your credit score.
With a student loan consolidation, you only have to worry about one account. Now, you no longer have to juggle multiple due dates and stress whether there is enough money in your account each time.
Account administration is also easier. There is now only one set of terms and conditions instead of multiple. You can also set up auto-pay so the payment is automatically deducted from your bank account each month.
Lastly, a loan consolidation package can improve your credit score. Reducing your monthly payment and number of accounts down to one will help you make on-time payments. This positive credit history is going to yield an increase in your credit score as you pay down the loan.
What Is the Application Process Like?
The application process for a consolidated loan is short and simple. It can be completed online in just a few minutes.
Specifically, our application does not affect your credit score. Typically, loan applications result in a hard inquiry on your credit report. This inquiry usually results in a credit score decrease.
You will application results back shortly. We will pair you with the best consolidation offers. There are also no fees and you do not have to make a down payment.
What Types of Debt Are Accepted?
If you elect to do a private loan consolidation, you have the flexibility to fold in other types of debt. Many Americans are drowning in credit card debt and medical bills. These types of debt can be folded into a loan consolidation package.
Personal loans and lines of credit are also candidates for consolidation. Even accounts in collection can be rolled into your new loan.
Should I Consolidate My Student Loans?
The facts presented here lead to a resounding yes. There are far too many benefits to ignore with the right student loan consolidation.
You can lower your interest rate to secure a lower monthly payment. The end result is an improved credit score and fewer accounts to juggle each month. You can even roll in other types of debt that are plaguing your monthly finances.
If you are still asking, should I consolidate my student loans, please contact us to speak with a loan specialist.