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Consolidate or Refinance: Which One to Choose?

You may realize that you need to take care of your student loan payments, yet knowing precise what to do is the issue. There are two fundamental alternatives with regards to private student loans (federal loans won’t be secured in this article since you need to consider a couple of new terms when working to lower government loan payments).

The choices that you’ll discover incorporate renegotiating or union. The two sound the same, yet they are diverse.

Knowing the distinction between these two alternatives will help you choose which choice is a good fit for you.

Student loan refinance

Renegotiating implies that you will take out another loan to pay off the current loan(s). Once you’ve refinanced, the two loans will be consolidated into one loan with a lower regularly scheduled payment. Ordinarily, renegotiating permits you to pick better financing costs and repayment terms, however, as a rule, you do need great credit (and a decent reputation with regards to making regularly scheduled payments) to refinance.

You can student loan refinance both federal and private loans, yet renegotiating a federal loan implies that you will surrender individual rights that you most likely would prefer not to forfeit.

Student loan consolidation

When you solidify a loan, you don’t take out another loan. Rather, you join different loans into a single loan. The advantage of solidification is that it’s simpler to make one single payment as opposed to making separate payments for numerous loans. While a debt may be brought down on the off chance that you merge a loan, there’s a decent risk that the financing cost will be much higher – this is something that you’ll need to be exceptionally watchful about.

It doesn’t bode well to combine a loan for sheer straightforwardness and pay higher financing costs. If combination entices you, take a gander at different choices before settling on this decision. Renegotiating may be a preferred course to go if you can refinance your student loans.

What the Future Holds?

Honestly, the future doesn’t look that encouraging. Each academic year, the interest rate on student loans is skyrocketing, causing more worries for borrowers and those who are contemplating taking out education loans.

In July of 2016, student loans interest rates for 2015-2016 have increased yet again. It’s an increase of 20% compared to the previous academic year.

The changes in the interest rates are listed below:

  • New interest rates for direct subsidized and unsubsidized Stafford loans will be 4.66%.
  • Direct unsubsidized Stafford loans will have interest rates of 6.21%.
  • Interest rates for Direct Graduate PLUS loans will be 7.21%.
  • The direct Graduate PLUS Loans and Direct Parent PLUS loans interest rates have gone up to 7.21%.

These changes in the interest rates might leave an impact on the number of enrollments as many would hesitate considering the high education cost. To meet the costs, they will invariably take out student loans, which is likely to create an additional financial burden for them.

The Difficulty

The issue with bringing down most month to month student loan payments is that you truly need great credit to get an incredible rate. It’s hazardous (and typically is), following most graduates with large student loans a) might not have a substantial employment yet b) may have missed a payment or defaulted as of now.

The difficulty was making your loan payments; it’s an excellent opportunity to get money related help. In spite of the fact that bankruptcy is a final resort, a bankruptcy lawyer might have the capacity to help you choose on the off chance that it is the right choice for you. All same hope the above tips on student loan refinance and consolidation will work for you.

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The Constant Increase in Student Loan Debt in the U.S.

It’s a well-known fact that student debt is high, but the average debt upon graduating may surprise many Americans. 43.3 million people have student debt. Of this, the average 2016 graduate has $37,172 dollars in loans. That’s 6% more debt than the class of 2015.

Direct Loans take up the most money. 29.9 million Americans have direct loans that total to 840.7 billion dollars. In addition, there are 3.3 million Americans using the Parent PLUS Loan. These loans total to 71.1 billion dollars.

During the recession in the late 2000’s, most debts decreased. Other household debts decreased, but student debt continued to increase steadily. Tuition prices continued to rise. This left a greater need for loans. In return, it also leads to more borrowers. In addition, the average balances of student debt began increasing as well.

In 2014, there were 89% more borrowers than there were in 2004. In these ten years, there was also a 77% increase in the average balance per borrower. One reason for these sudden increases may be because more people decided to go to college. Between 2005 and 2010, college enrollment had a 20% increase. That’s faster than any time period in the past 50 years.

Likewise, college tuition has been increasing faster than any other period in time. In 2015-2016, the average yearly tuition of a public school was $9,410 dollars. Thirty years ago, in 1986, the average yearly tuition for a 4-year public university was $2,918. This is over a 300% increase in the cost of tuition over a 30 year period.

To go along with this increase, debt has been rising too. In the last quarter of 2014, there were 32.8% of borrowers that had $50k or more of student debt. The number of borrowers now are overwhelmingly millennial aged people, or people under the age of 25.

On the up side, a slightly smaller share is beginning to take out loans. Since 2010 there has been a slight decline in loans from their upward trend from 2005 to 2010. This doesn’t put it in the clear, though. Student loans are lifelong debts for some students. For borrowers aged 20-30, the average payment for a student loan is $351 per month. The average salary for a college graduate is $45,000. This is means that $4,212 of the average $45,000 salary is being used on paying student loans.

Furthermore, 66% of graduates had loans for a public college. That 66% had debt averaging $25,550. As if that wasn’t a big price on its own, 88% of graduates from for-profit universities took out loans. This average left $39,950 towards their student debt. And this is only the numbers for undergraduate studies.

However, graduate loan debt is a problem as well. 40% of the 1.2 trillion-dollar loan was spent on financing graduate or professional degrees. Common master’s degree such as Master of Education or Master of Science will leave a debt of $50k or more (including both undergraduate and graduate school debt). Out of graduate degrees, Master of Education or Science are most sought out (34% of people go for one of the two).

On the other hand, a graduate degree could cost much more. If a profession such as a Lawyer is chosen, there is an average combined debt of $140,616. A medical school loan will total to even more money. It averages to be $161,772. This being said 4% of graduate degrees are in law, and 5% of graduate degrees are in medicine or health sciences.

Attending college is becoming more expensive and, due to that, loans are becoming more common. With tuition skyrocketing, it means loans are starting to be necessary for college to be attainable. Many students don’t have the average $9,410 per year to put towards their tuition. They’d need to save for years, so the opportunities of loans are helpful, but they’re also a money maker for the lenders – the most common lender being the government.

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Voting to Lower Interest Rates

In 2004 there were 23 million Americans with loans. Today there are over 43.3 million Americans. This is a colossal growth rate, so it makes sense why loans are such a huge deal in politics right now. America currently has over 1.2 trillion dollars of student debt. This is the highest it’s ever been and it is continuing to increase.

In politics, the debate of student loans and funding of higher education has been a hot topic lately. Senator Bernie Sanders, a self-proclaimed democratic socialist, kept it as a front issue in his presidential campaign, arguing that there should be free education for all Americans. This is the only candidate suggesting a free higher education platform, but many other congressmen are suggesting lowering interest rates to cut costs.

It cannot be argued that student loan interest rates are still quite high. Right now they’re declining, but ten years ago the interest rates were nearly 8%. This is something that some politicians would like to focus on.

In speeches, Hillary Clinton, a contender in the presidential election, said that she would like to lower interest rates on both current loans, but also allow past loans to refinance their debt. This would effect many, but it doesn’t help the people who need it most.

Basic math will show that decreasing interest rates will have the biggest payoff with bigger loans. If you have a $20,000 loan and the interest drops from 5% to 3%, that’s $400 to be saved. If you have this same decrease in interest rates for $10,000, only $200 is being saved.

This being said, that 2% cut would help out someone with over $100,000 or more in debt the most. Thinking about it, most of the people in that sort of debt are in professions such as doctors or lawyers. They make more money than someone with a $20,000 loan, yet they’re getting the most help out of everyone.

Many times, loans are defaulted, or left un-paid, when there is a minimal loan balance left. The majority of loans are defaulted when there is less than $10,000 left to pay off. Being defaulted means it destroys credit scores and the entire amount is suddenly due. It hurts chances of getting loans in the future and is a monetary fiasco.

This being said, it would be thought that if this is a problem area, this would be the place to fix it. That is being proven untrue, because, as math showed earlier, lowering the interest rate gives more leeway to higher loans, not these loans that are under $10k.

Refinancing loans seems great, but it’s hard to see why other approaches may be better to refinance loans. If Hillary Clinton applied this plan, it would cost around 350 billion dollars over a ten-year period. This is a lot of money, so it’s being debated if there is a better way to distribute the money that would help struggling borrowers the most.

Hillary isn’t the only one with a plan. Her conservative opponent, Donald Trump, is looking for the best way to decrease student debt also. He states, “[Education] is probably one of the only things the government shouldn’t make money off.”

Both conservative and liberal politicians agree that something needs to be done to reduce student debt, but the question is the method of fixing it. Many government officials are still debating the best way to approach this issue. It’s a noticeable problem, and the politician’s plans will effect a lot of voters. For example, a good plan to take care of student debt will bring in the voters that are effected by it. Those 43.3 million Americans are looking for ways to minimize their remaining debt, so the best approach to deal with student loans can sway voters to choose them.

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Working Through College: Then vs. Now

It’s common for young millennials to hear about their grandparent’s college experiences. I know plenty who will go on about how they worked through college. Some call the younger generation lazy, but statistics show otherwise.

To start, let’s go back to 1986. That’s 30 years ago, a time when the previous generations worked through college. Minimum wage was $3.35. This seems so little compared to today. But numerically, it’s not so little.

On average, a public college’s tuition would cost $1,459 per semester. Figuring that the average college student takes 15 credit hours per term, this equates to $97.20 per credit hour at a public school.

Comparing that to today’s economy, a public college’s tuition, on average, is $4,705 per semester. This would equate to $313.33 per credit hour if there were a standard 15 credits being taken at a time.

If you put the $97.20 from 1986’s tuition and apply it to todays world, the computed equivalent (with inflation) would be 213.06 now. This is a large difference from the actual cost of $313.13 listed above. In fact, that’s a barely shy of a third more than college was in 1986 respectively.

In addition, from 1986 to 2016, college tuition would be $6,396.06 economically speaking. This means that with inflation, a full public college’s tuition would be $6,396 per year. In reality, the college tuition skyrocketed past that to $9,410 per year.

These statistics are saying that there is a reason more loans are being taken out. College is notably more expensive when compared to what it was decades ago. Loans are needed more now because college tuition has gone up so drastically. As the cost of college goes up, the minimum wage cannot keep up. Once upon a time, a college credit was able to be paid with working a minimum wage job for a few shifts per week. It would take weeks to months to pay off a college credit in this generation.

Today, the student debt is the highest it’s ever been. 54% of baby boomers reported that they didn’t even take out any loans while they were in college. Millennials, on the other hand, had 1-in-8 say that they had borrowed $50,000 or more to fund their education. This means that throughout their lives they’re stuck with paying more than $50,000 back to private and federal institutions. That money they finally earn with the degree they worked for is deducted because college is so expensive.

Loans today are almost essential to the lower and middle class. It’s also becoming more essential to have a college degree in order to even find a full time job that will pay enough to live on. Without a degree, there’s a bigger risk of needing to live a life in poverty.

Despite this, 25% of millennials say that the benefit of their degree wasn’t worth the loans needed to fund it. This is a perfect example of why it’s important to get the best loan. No one likes loans, and no one wants to pay their loans, but sadly, if you want to go to college in 2016 you will most likely need loans. Two ways to become less wary about a loan is thinking about the payment plans or carefully looking at the terms and conditions before signing a loan.

Unfortunately, it isn’t the day in age where working part-time can fund a full-time education. In most cases, even working full-time can’t guarantee an education – especially if you’re working without a college degree. Having a college degree brings in over $23,000 more income, on average, so it’s imperative to decide if a college education is worth the money.

 

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