Throughout the last twenty years, the average salary amongst college graduates in the United States has been on a steady upwards creep. Growing, both in relative terms and in line with inflation and a range of other economic effects, it’s now a substantial margin higher than the average non-graduate salary, with the average professional graduate earning almost twice their high school counterpart.
But despite this dramatic salary gap, a number of highly qualified and experienced economists are claiming that college isn’t quite as valuable as we may have once thought. Armed with data from a generation’s worth of college students, average debt figures, and even the CPI curve itself, they’ve argued that the true value of a college degree is deflated because of the massive debt it requires.
They’re certainly not too far from the truth in that assessment. With the average student having a total debt balance of over twenty-five thousand dollars, it’s not an inexpensive experience. Costs from a standard four-year degree can routinely reach into the hundreds of thousands of dollars, as students from many of the country’s top schools have realized during their recent study periods.
To meet these massive costs, many students take on huge loans – loans that reach into the tens of thousands of dollars, and cost a significant amount more to repay after graduation. Packed to the brim with interest and loaded with fees for late payments and missed deadlines, they’re a financial minefield, and one that’s unable to be avoided, even after an individual has declared bankruptcy.
There are solutions, however. With the average student struggling to repay their debt in today’s low job market, many have turned to student loan consolidation services to assist them in getting by. An even larger number have consolidated all of their loans – both Federal and private – allowing them to repay their total college debt over a significantly longer period than is the standard.
There are various advantages and disadvantages to this approach, both of which are discussed in greater detail below. If you’re considering using a student loan consolidation service, it would be wise to continue reading. As simple as these services can often seem, and as obvious as their key benefits often are, it’s always better to learn more about a service that could change your life.
For the most part, student loan consolidation services are used to extend the repayment period of a student loan, at the expense of shaving a moderate amount off of each monthly payment. As many of today’s students are stuck with thousand-dollar monthly repayments, often paired with a lack of any income, it’s an option that’s becoming increasingly popular out of necessity with graduates.
Even in an ideal job market, in which all graduates are working for six-figure salaries immediately after graduating from college, it’s a competitive and effective option. By taking out a consolidation loan for their students debts, the average graduate can significantly reduce their monthly living and debt-related expenses. This can free up short-term cash flow, allowing for sensible investments.
However, this freeing of short-term cash does come with its own set of expenses. While most of the private student loan packages available today have relatively short repayment periods, consolidation loans tend to be for the longer term. This means that most students will pay off a consolidation loan for several years longer than their standard financing, potentially repaying a greater amount.
This means that the total balance of your loan – that is, the amount that needs to be repaid – tends to increase when debt consolidation is used to limit your monthly repayments. This is because of your new loan’s extended term. However, it’s worth considering the opportunity cost of this type of long-term loan. Does short-term cash flow allow you to invest your current income in a productive way?
If the answer is yes, using a student loan consolidation service makes perfect sense. In this case, it’s necessary to choose between a single loan for your private student debt, or two consolidation loans, each one covering a different type of debt. Unfortunately, both private and Federal loans are unable to be repaid with a single consolidation loan, forcing the use of two separate loans in this case.
Despite this, the average cost of taking out two loans – each to cover a different type of debt – isn’t that great of an issue. The rates applied to a consolidation loan, particularly for student debt, tend to be on the low side. As a result, the only additional cost of securing two types of debt is the time cost that’s required to manage the loans – typically, this is just a few minutes for each loan monthly.
Before you invest in any debt consolidation service, whether for student loans or consumer debt, it’s essential that you consider the true length of your consolidation loan’s repayment period. What once seemed like a short-term consolidation loan – a few years, at most – has frequently spiraled into an immense debt for students, often due to poor research. Know your repayment deal, and stick to it.
If you’re financially cautious, sensible with your student debt, and blessed with a job that allows you to make the monthly repayments easily, using a student loan consolidation service is a smart idea. However, it’s essential that you understand the risks and downsides. Far from perfect, it’s an ideal option for some, yet a disaster in the waiting for many financially uncertain students.