I often see articles citing student loans as one of the main reasons that young people have a hard time saving and are waiting longer to purchase homes.
College costs have inflated around twice as much as general inflation and the average college graduate has around $30,000 – $40,000 in student loan debt.
According to the Federal Reserve, Americans have about $1.5 trillion in outstanding student loan debt, which exceeds outstanding credit card debt at $1.0 trillion, and faces an increasing delinquency rate.
Some people may be inclined to want to consolidate these loans to help with their cash flow, but this can be a tricky situation:
- There’s a difference between consolidating and refinancing.
- Refinancing Federal student loans into a private loan can mean losing benefits that Federal loans have such as repayment plans and loan forgiveness.
- Consolidation likely means that you’ll be increasing your repayment period to help with decreasing the monthly payment, which could end up meaning that you pay more in interest in the long run. I can’t imagine continuing to pay towards student loans 20 years after I graduated. That’s longer than some mortgages!
- Consolidation can also lead to the loss of some Federal loan benefits.
- Some of the loans that you consolidate may have actually been at lower interest rates before the consolidation.
