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Student debt companies are accustomed to working with newly enrolled and newly graduated students as they finance their futures and repay their debts. Whether you’re refinancing your loans to consolidate and cut costs or you’re taking on a first-time loan to fund your education, the process can be overwhelming. This summary will give you a comprehensive overview to allow you to choose your company with confidence and understand the services you’re buying.
Secondary education is expensive and figuring out how to fund it can be confusing. The average American college student will graduate with nearly $30,000 in student loans. These loans are federal or private funding that students may use to pay for tuition, supplies, living expenses, and books during their secondary education. A loan is disbursed to the student’s school, and all expenses charged by the school will be deducted before the remainder is given to the student. Students, prospective students, and graduates should research and decide how to manage this debt through the various means federal and private institutions offer.
Before you can understand your options, review these financial terms and what they might mean for your repayment plan.
Student loan companies offer several services to help customers finance their futures. Know which types apply to you.
Customers may be wondering the best way to transfer a loan to a recently graduated student, or they may be a graduate themselves seeking a way to lower interest rates or simplify loan repayment. Many private student loan companies offer opportunities for loan consolidation or refinancing.
Loan companies can consolidate multiple federal loans into one loan. Consolidation will not impact repayment terms such as interest rate. This is an option for federal loan holders because the U.S. Department of Education offers the Direct Consolidation Loan. Private companies that offer this service may have fewer deferment and loan forgiveness opportunities than federal consolidation plans, but it could allow you to extend your loan terms and bundle multiple loan payments into a single payment for easier payment. Weigh the pros and cons of your consolidation options before choosing whether to consolidate with a private company.
Loan companies can also refinance single or multiple federal or private loans into one loan with a better interest rate or repayment terms. Refinancing is the only option for private student loans. Customers with a higher credit score than when they took out their original student loans will find that refinancing can offer them better interest rates.
Circumstances may prevent a student from repaying loans. Certain arrangements will allow customers to postpone their loans until they are ready to resume payment.
Students may postpone payments on their loans by deferring. Payments will be paused for the principal and, in some cases, the interest of the loan. Some companies allow students to defer loans when they are in trainings, military deployment, fellowships, or unemployed. For federal loans, students fill out and submit a deferment form. Private loans may also allow students to defer, but deferment circumstances may differ, and private institutions might charge additional fees for deferment. In addition, private student loan companies might allow interest to accrue while students have a loan deferred. Overall, private loans are less likely to have deferment plans compared to federal loans, but the best private loan companies will offer deferment options.
Some private loan companies use deferment and forbearance synonymously. However, forbearance always means the debt holder will pay interest on the postponed payments. Federal loans are one of the instances where there is a distinction between forbearance and deferment. For federal loans, interest will still accrue on the loan principal, and payments will be higher when a person resumes repayment. Forbearance is easier to qualify for, but it is a less desirable outcome than deferment on federal loans.
If a customer is behind on loan payments, the loan might default. The repayment terms of the loan will determine how long a debt holder can not pay before the loan defaults. Defaulted loans can be sent to a collection agency, and in some cases, loan companies can garnish wages to repay the loan. Defaulting on student loans can harm your credit score, prevent eligibility for other student loans, subject you to legal action, and cause you to lose up to 15 percent of your employee paycheck from loan repayment garnishing. This is clearly the worst case scenario for a student loan and should be avoided at all costs. Verify repayment terms with your lending company or companies and try other options, such as deferment, before choosing to default. If you find yourself struggling with additional debt or a defaulted loan, consider looking into debt relief services.
Parents might be able to refinance a loan through a private company to the graduate or student. Private student loan companies will typically ask that the student have a high credit score. Not all private companies will offer this refinancing method; check with your company of choice.
Many financial experts recommend planning a budget and taking out loans to cover the cost of schooling and living expenses. Students should calculate whether the average salary of their desired position will allow them a manageable debt-to-income ratio with the student loans they plan to take out.
Ideally, graduates will spend less than 10 percent of their income repaying student loans, making a 10-year repayment plan manageable. Students could also consider switching to another school as an alternative to planning a large personal financial deficit.
Loans can pay for tuition, fees, housing, transportation, meal plans, textbooks, supplies, and other living expenses.
When paid consistently, student loans can raise a person’s credit score to create a positive financial history. If debt results in a higher return than taking on no debt, it’s considered a beneficial investment. Therefore, student loans that pay for an education resulting in a career which can easily manage the debt will lead to a positive outcome. When framed with this in mind, debt is not always a bad thing. However, debt is a drawback if it is excessive and unmanageable.
We have compiled a list of the highest ranking student debt relief companies to help you find the best options to refinance and consolidate your student loans.