Is student loan consolidation right for you?

Blue Water Credit is proud to announce we’ve been approved to provide student loan assistance.  We can now help you explore all of your options, including student loan consolidation, rehabilitation, and even possible forgiveness.

Is student loan consolidation right for you?

Recent reports claim that 7 out of 10 college graduates end up with student loans, with an average of almost $30,000 in debt.  Many of them struggle to even make the monthly payments, holding them back from saving, paying off credit cards, or buying a home.  But thanks to new legislation, there is help.  You may be eligible to consolidate your student loans, rehabilitate delinquent loans to get back in good standing, or even possibly have your loans forgiven.

So how do you know if student loan consolidation is the best option?

If you’re making payments on several student loans every month, whether it’s three or five or more, consolidation is worth looking into.  It will combine all of your loans into one larger loan, reducing interest rates and simplifying with one, low payment – saving you money every month and also helping you pay off your loans faster.

Although student loan consolidation is a great option for many people, there are some advantages and disadvantages to be aware of.
By wrapping all of your smaller loans into one big loan, with a lower, fixed interest rate, your monthly payments should go down.  You’ll only have to make one simple payment every month.

Although consolidation may reduce your monthly payment significantly, be aware that you’ll probably be paying a lot longer.  There are many different kinds of loans and repayment options, but most Federal student loans originate with a 10-year repayment term.  Through consolidation, that period may be stretched to 15 or even 30 years.  So even though your monthly payment may be far less, realize that you could be paying longer.

Another advantage of consolidation is to fix interest rates.  In the past, most student loans were based on variable rates that could change every year, usually July 1.  By consolidating, you will be able to lock in a fixed interest rate over the whole term of the loan while rates are currently low.  That stability could save you a lot of money in the future when rates fluctuate higher.

Of course, lowering your interest rates is a key goal of consolidation.  By calculating your weighted average (interest rates and loan amounts) we can determine your blended rate, or true rate.  From there, we’ll compare to a new consolidated interest rate to make sure you save money.

So when is consolidation not the best option?

Like we stated earlier, your monthly payment will go down when you change a 10-year payment term to 15 or 30-years.  But it’s important to realize that the grand total you end up paying will be higher because the loan is spread out so long (and interest applies for longer,) even though your monthly payment is much lower.

You also don’t want to lock in a fixed interest rate when rates are declining, because you may leave money on the table.

Some student loans also offer perks  - like reduced interest rates for timely payments and flexible payment options (especially with PLUS loans.)

What's the next step?

So consider all of these factors before deciding if student loan consolidation is right for you.  Our new service allows us to explore all of these options with you – including if you’re eligible for loan forgiveness, or consolidating into a lower payment every month.  Contact us for a free evaluation and to see if you're eligible.

The skyrocketing cost of higher education.

Higher education has a bigger price tag than ever – far outpacing our rise in income - and it’s distancing a lot of lower and middle class families from the hopes of sending their kids to college or university.  That’s the consensus of new data published by the reputable think tank, the Pew Institute, among others.  But just how high have college costs soared, how are we still paying them, and why?

What’s not under dispute is that higher education still pays off in terms of job and income prospects – according to the aforementioned Pew, Americans ages 25 to 32 who were college graduates earned $17,500 more on average than their peers who were only high school graduates.  Over the working life of an adult, that gap probably only widens – a huge testament to why we still endeavor to send our children to a university campus in the fall.

First, a look back at the context of college education 50+ years ago, post World War II.  With GI’s returning from war and the population booming, universal access to public education was considered the ladder to pull yourself to a better life.  A college degree (sprinkled with a lot of hard work and loyalty to/from the same employer for life) was the key to open the American Dream – financial comfort, security, home ownership, and the never-ending entitlement of each generation being more prosperous than the last.  It didn’t matter who you were, how much money your parents had, or where you came from – education was seen as a birthright for all who wanted to take advantage, and especially by lower and middle class families.

Even 20 years ago, less than 50% of college graduates received their diplomas with any student loans to debt to pay, and it was less than $10,000 on average (adjusted for inflation.)  Fast forward to 2013-2014 and the number of college graduates with significant debt has skyrocketed. The latest numbers for the 2012-2013 school year show that about 70% of college graduates have student loans and other debt to pay from their education.  Even more telling is that each student with loans has an average of nearly $30,000, according to the Institute for College Access and Success. 

However, there is more to the story.  At quick glance, it would seem that the cost of college tuition has actually slowed its ascent, or is actually plateauing.  Last year, the average cost of four-year public colleges went up only by 2.9%, which was the smallest percentage increase since the middle of the 1970’s.  

Not so fast.  While tuitions may be leveling off after a precipitous thirty-year climb, the cost of college is still shooting skyward.  Factor in fees, school supplies, room and board, books, etc., and it’s easier to see why more would-be students are getting squeezed out of a college education.  When factoring in tuition AND those various essential fees, the average cost of a public four-year university has increased 27% over inflation over a five-year period, from the 2008-9 school year to 2013-14.

When looking at college costs, it’s best to consider what experts call, “Net Cost.”  That is, tuition plus those fees we discussed, less the amount of aid and grants available to help students in need, amounting to their net out-of-pocket expenses.  This is a significant distinction because ever since the GI Bill was created, the United States government has been in the business of incentivizing college education through grants and aid.  Most common are Pell Grants, Academic Competitiveness Grants, and school-dispensed financial aid.  In theory, this makes college education possible and affordable for millions of deserving kids ever year.  In reality, the financial aid system has been described as, “Arcane and inconsistent,” in a recent report by National Public Radio.   Applicants must show a, “demonstrated need,” to gain financial aid and grants, yet the economic math to qualifying still allows just as many middle class families to fall through the cracks as those that qualify.  

During the recent years of our recession, rolling into 2008-2009, the White House pumped huge money into public education support as a way to offset stalled incomes shutting the door on higher education.  Pell Grants alone doubled from 2008-9 to 2010-2011, an astronomical number.  So even though the country was feeling the pinch, the cost of higher education was like a leaking boat with a lot of people bailing water out at once – still afloat, but destined to sink eventually.  Since 2008-9, Federal grants have been decreased by at least 10%, contributing to the feeling of seasickness among families looking at a tuition bill, once again.

No matter how you slice the cost-of-education pie, we’re left with a disturbing reality – the cost of education, adjusted for inflation, has more than tripled between 1973 and 2013.  Current data shows that the cost of a four-year, in-state public university or college averages $8,893.  The corresponding cost for a private university is $30,090, a 3.8% increase since only a year ago.

Your Student Loan Repayment Study Sheet.

What are student loans costing us?

Student loan debt has exploded over the past few years, from a total of $579 billion in 2008 to $1.02 trillion at the end of 2013.  This near double of student loans over only a 5-year period accounts for the majority of consumer debt increase over that same period.  By most recent estimates, about 70% of all college students take out student loans and owe money at graduation, with the average price tag a whopping $26,600 per student.

As students enter the working world, this level of debt often holds them back – from buying cars or houses in their 20’s, from getting married and starting families for lack of finances, from starting businesses, and even from moving out on their own.  It becomes harder for them to open other positive lines of credit and pay all of their bills, and the financial shortfall often falls onto credit cards. 

In fact, debt and finances are a major contributor to the precipitous rise in stress levels among 18-24-year olds.  But there is help – now there are tools available to help manage student loans so they are affordable and eventually, paid in full.

Understanding Federal vs. Private student loans.

Any discussion of student loan management must first start by outlining the difference between Federal and Private debt.  Private loans, or alternative education loans, are issued and backed by private lenders.  Federal loans, however, are backed by the U.S. government as an incentive for education. 

It’s important to note that all student loans are unsecured debt, which means there is no collateral for the lender if you defaulted (like with a loan secured by a home or a car, etc.)

Generally, there are far more options to help with Federal loans than private loans because so many government programs exist. 

What options are available?

Help with student loan payments usually comes in the form of Consolidation, Rehabilitation, or Conversion.

Consolidation:

Like we detailed with the options above, consolidating several loans into one loan can often reduce your payments and help you pay it off more efficiently.  You can try to lock in a low fixed rate instead of dealing with fluctuating variable rates.  Total interest charges may be lower with one loan, as well, and repayment plans are often set for 15 or 30 years instead of the 10-year repayment plan that is standard when student loans are cast.

Rehabilitation:

If your loan is in default, rehabilitation may be the best option for you.  Whether you missed only a payment or two or you haven’t been paying at all, this process helps you get back in good standing.  Basically, you agree on a realistic payment plan with your institution that you stick too.  Once you do that and the loan is back in good standing, it will probably be bought by a lender, and considered rehabilitated.  But collection costs and late fees may be added to the loan’s principal, but this will stop default reporting on your credit, any wage garnishments, and forced withholding by the IRS you suffered while in default.

Conversion.

Conversion is the process of shifting your Federal loans to Private loans.  Some times, this makes sense if you can lock in lower fixed interest rates and spread the loan’s repayment out over a longer period.  However, it’s not common that conversion to Private loans is in a borrower’s best interest, so be sure to consult with us before you do anything that’s permanent – and you’ll regret.

Most prevalent - Federal Student Loan Repayment Plans:

If you’re paying off federal student loans, you are one of nearly 37 million borrowers with outstanding student debt. The U.S. government offers you several repayment plans, including some that give you a maximum of 25 years to pay off your student debt, while others are tailored to your income and family size. You can even switch your plan if your needs change.

Standard Plan

You’ll pay a fixed monthly amount until your loans are paid in full or for up to 10 years. Your monthly payments will be at least $50. If you do not select a repayment option, you will be defaulted into this plan.

Graduated Plan

In this plan, your payments are not fixed. They are low at first and gradually increase. It’s a good plan if you expect your income to grow steadily over time. No payment will ever be more than three times your lowest payment.

Extended Plan

This plan follows a fixed or graduated monthly payment, but you have up to 25 years to pay it off. You pay more interest than other plans, but payments are lower than a Standard Plan.

Income-Based Plan

Your monthly payment is based on 15 percent of your discretionary income, family size and state of residency during any period where there’s a financial hardship.

Income-Contingent Plan

Your monthly payments are calculated on your adjusted gross income, family size, and total loan amount. You have up to 25 years to pay it off under this plan.

Pay-As-You-Earn Plan

Also known as President Obama’s Student Loan Plan. Monthly payments are calculated on a similar basis to the Income-Based Plan, but payments are capped at 10 percent of discretionary income. It’s adjusted annually and you have up to 20 years to pay the debt.

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Which option is right for you?  That’s the big question, and one we can help you answer.  Feel free to contact Blue Water Credit for a no-risk consultation, and we’ll be sure you make the grade when it comes to student loans!

If you would like help to see what program you may qualify for please call 916-315-9190 ext 300.