How to Consolidate Student Loans

Mini graduation cap on dollar bills.

You entered college with the knowledge that earning a four-year college degree would make you vastly more employable. It took long study hours, paper after paper, week-long study sessions before finals, and tens of thousands of dollars. Scholarships probably did not cover all of it so you likely have some college loans.

How to Consolidate Student Loans

In the US, consumers owe more than $1.64 trillion in student loan debt. Even credit card debt measures less – more than half a billion dollars less. About 45 million individuals took out student loans. Nationally, the average college debt equals $29,900. Parents owe money, too. About 14 percent of student’s parents also took out loans with an average PLUS loan debt of $37,200. Sallie Mae tries to recoup its money as quickly as possible so the typical monthly payment ranges between $200 to $299.

Right out of school, you might not make the salary you had envisioned. You could probably make due except six months after you graduate, you owe your first payment on your student loans. Sallie Mae wants its money. Many graduates struggle to re-pay their student loans. You may submit deferment after deferment requests, but the best option remains finding a way to repay.

You do have options. Deferment can help for a short time. Consolidation and refinancing also provide options.

Learning How to Consolidate Student Loans

Before we jump into consolidation, let’s talk about what happens when you apply for a deferment.

Deferment Option


This makes a good option if you just need a few months before you can comfortably begin repayment. A deferment lasts for six months. You can request them more than once. That means if something unforeseen occurs and you cannot start your new job on time, you can also push back the date by which your payments begin. You can download a deferment form from the Sallie Mae website or you can file an online deferment form.

Sometimes, Sallie Mae arbitrarily mails a blank form to you. You need to file it as quickly as possible. Shoot for at least two weeks before your payment due date. Even if you have a deferment pending, you must make your student loan payment.

You must stay on top of your paperwork. You could file for a deferment and think everything has been taken care of, but the deferment could get denied or the agency could determine the form was completed incorrectly. This could put you into default. You can quickly get out of default status by negotiating with Sallie Mae. Go past the customer service representative by asking for a manager or write them a letter that explains the situation. As for a small, good faith payment you can pay to get the loan out of default status. Next, request a hardship payment plan. This lets the agency know that you do want to pay your debt and you take it seriously.

But, let’s look at ways you can avoid needing a string of deferments and how to can completely avoid defaulting.

Consolidating Your Student Loans to Better Manage Finances

Perhaps you’re already familiar with the concept of consolidation of credit cards or loans. If not, essentially, rather than making many smaller payments on a bunch of loans, all of them get bundled together with a uniform interest rate allowing you to make one payment per month. The organization to which you make the payment then distributes it among the various loans.

This can make it simpler to protect your credit and make the payment on time each month. It can also make it cost less each month although the re-payment time period may lengthen.

When you consolidate student loans, you can bundle all of the loan types. Your federal, state, and private loans can all go into the consolidation loan.

Two Types of Consolidation

When learning how to consolidate student loans, your first major decision is how to consolidate. Two main ways exist. You can consolidate with an organization like the Department of Education (DOE) or you can take out a larger loan that lets you pay off all of the student loans and only owe one payment per month.

Consolidation Programs

You can use the Department of Education (DOE) to consolidate or a private bank if you need to include private loans. This type of loan consolidation works similarly to consolidating credit cards through a non-profit. You would pay the DOE a single payment each month which it would distribute amongst the loans.

A private bank would consolidate your loans by purchasing them. Each month, you would make a single payment to the bank to cover the total debt.

Under both of these scenarios, you obtain one interest rate and one monthly payment. This can result in a lower interest rate for you which can save you money. Depending on the term of the loan, you might create much smaller loan payments for yourself. If you obtain a mortgage-like term of 30 to 40 years, you could end up with tiny payments that result in you having more money in your budget for other things like savings and investment. That helps you because investments can grow at a higher rate than the interest you incur on the consolidated student loan. That means you could save up a lump sum to make a balloon payment and get out from under the student loan debt completely.

Consolidation Loans

You can obtain a consolidation loan for any type of loan or debt. It does not apply only to student loans. Using this method, you can pay off both the private loans and the federal and state loans through the government. You do need to qualify for a potentially sizable loan though. This might not present that large of a problem if you already landed a career-level job within the field in which you earned a degree.

Depending on your credit score, you could land a decently low-interest rate. One step in how to consolidate student loans is learning your credit score and potentially raising it before attempting to obtain a consolidation loan. If you just graduated and obtained career-level employment, you should have decent credit so long as you did not jump on the credit card bandwagon during your undergraduate. You need a minimum of 640 to earn a decent interest rate that can compete with the rates your federal loans probably offered.

Once you know you have a strong credit score, you need to study your student loan debt portfolio. You must know exactly what you owe under which program and to what lender as well as your monthly payment to each. Your portfolio might include any or all of the following loan types:

  • Direct Subsidized Stafford Loans
  • Direct Unsubsidized Stafford Loans
  • PLUS loans from the Federal Family Education Loan (FFEL) Program
  • Direct PLUS Loans
  • Supplemental Loans for Students
  • Federal Perkins Loans
  • Federal Nursing Loans
  • Health Education Assistance Loans
  • Private loans

Get Access to All of Your Federal Financial Aid Records

You can look up all of your federal loans in the National Student Loan Data System online. You can access all of your federal financial aid records there.  To determine your total student loan debt before moving forward, you need to use this type of student loan planner.

You will need to look up your paperwork on each private loan by checking your own paperwork or checking with each lender. Chances are that since they want their money, they probably mail you regularly about your payments. This makes it easy to add them to the list and have their contact information at the ready.

How to Consolidate Student Loans: Honestly Assess Your Situation

Do you already have employment that would allow you to re-pay a large loan? If you consolidate through the DOE, can you make their schedule of payments? Here is where the research comes into play. You need to contact each potential consolidation option and ask a few questions.

  • What would the payment schedule be?
  • What would the estimated monthly payment be using each option?
  • Is there a payment forgiveness option for at least one payment?
  • What happens if your situation changes, i.e. your hours get reduced, you lose your job, a medical problem arises, etc.
  • What is the penalty for late payment?
  • Once you consolidate with the DOE or a private lender, you cannot unconsolidate. The only option would be to pay them off completely with a consolidation loan. You then pay the consolidation loan off. What is done cannot be undone. Realize that when you sign the paperwork.

Is Consolidating Right for You?

You should consolidate your loans if your federal loans already entered default status. Doing so can help you save your credit rating. Other scenarios also mean you should consider consolidation.

If you know that you cannot really afford the payments you make each month, and you fear you will make late payments or default, you should consolidate.

You can also consolidate to make bill payments easier. Instead of multiple payments each month, you can make one. This makes scheduling payments simpler. You might end up with two payments if you have both federal and private loans. Besides the no going back to unconsolidated loans caveat, you also need to understand that when you consolidate private loans, you could owe a fee of up to 18.5 percent. That adds to your loan principal plus although you will likely have more years to pay things off, you will also pay more in interest that way. The federal interest rate cap of 8.25 percent remains much lower than credit card rates, but it adds up when you pay off a loan of about $30,000. You will have all new loan terms and conditions regardless of the type of consolidation.

Final Thoughts

Visit the website StudentLoans.gov. Complete the application. Carefully review the summary sheet you obtain once you complete the application. If it all looks correct, life is good. But, if you see a mistake, within 15 days, contact the DOE to correct the information.

If the application gets approved while you were in default, you will choose one of three payment plans and re-enter re-payment. Each option, IBR, Pay-As-You-Earn, and ICR, provides income-based payments. People with no loans in default get to choose from six repayment plans – standard, graduated, extended, income-Based, Pay-As-You-Earn, and income-contingent repayment. This is based on discretionary income and will not exceed 20 percent of what you have available monthly.

You start making your payments again. Voila. You eventually pay off your student loans and get a badge for adulting.

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The Ultimate Study Guide to Student Credit Cards

Being a college student these days is hard. I am sure it has always had its share of challenges, but I would agree that it is much harder than it used to be. The cost of college has risen exponentially and parents can no longer afford it. That means students must try to get scholarships and grants. Students must take out loans and get jobs to pay for the rest. It is not just tuition, room and board anymore. There are books, computers, equipment and additional fees that need to be paid. Many college students are leaving school with the burden of heavy debt that takes them an incredibly long time to repay. Most college students have a job of some sort which means they get little sleep. They also have access to student credit cards, which as we all know are a blessing and a curse.

What Is A Credit Card?

Technically, a credit card is a rectangular piece of plastic that you use in place of cash to make purchases. In a store, you need the actual card, but when shopping online all you need is the credit card number. When you use the credit card, you are agreeing to pay back the money with potential interest and fees.

The credit card company, which is typically a bank, is basically giving you a line of credit. This means they are agreeing to allow you to borrow up to a certain amount of money. You can use that line of credit incrementally, or all at once. However much of the line of credit you use is due within 30 days.

To make it easier to understand, I will explain with numbers. Please keep in mind, these are not real numbers. I am making them up only to help you understand the concept.

A credit card company gives you a limit of $2,000. That means you can use that $2,000 in any way and any time that you wish. However, in about 30 days, they want you to repay the money you use. If you do not pay it all, you must pay interest charges. Those charges differ depending on the bank and your credit. For purposes of this explanation, I am going to say your interest is 20 percent. There is a minimum that the credit card company wants you to pay each month.

You have $2,000 available. You spend $300. That means you now have $1,700 available. When the bill is due, you pay all $300. You now have $2,000 available until the next time you use the credit card.

However, let us say that you spend $1,000 and you cannot pay the full amount. You have spent $1,000, so you only have $1,000 available. Since you cannot pay the full amount, the credit card expects at least a minimum payment from you. They have told you that the minimum payment is $100. You pay $500. That means your available credit is now $1,500. But, you have satisfied your minimum payment, but have no paid the full balance. That means you have interest applied to the other $500 that you did not pay. At 20 percent interest, that is $100. That is added to your balance due, which just went from $500 to $600 and your available credit amount goes down from $1,500 to $1,400.

These same basic concepts apply to student credit cards, except they are meant to draw the attention of students and often have a lower available balance.

What Is Revolving Credit?

I have given information about credit cards and how they work. That available credit that I mentioned in the section above is called revolving credit. I want to take a moment to explain what that means. It is a key piece of information for you when it comes to debt and credit scores. Revolving credit, credit cards in particular, tend to have a high interest rate. Much higher than you find with an installment loan. I will share more about installment loans a little later. The interest rate on a credit card is anywhere between 9 percent and 25 percent.

Revolving credit gives you a great amount of flexibility, which is one of the best things about it. It works really well if you are able to pay off your credit card balance each month. You should know that every time you make a purchase with your credit card or carry a balance, it may impact your credit score. When using revolving credit, you should use it wisely. Even student credit cards have revolving credit and it is a good way to create smart habits.

You should be sure to keep your credit card balances as low as you can. While you can use all of the credit extended to you, that does not mean that you should. When you use all of the credit extended to you, it will lower your credit score. I will explain more about credit and credit scores a little later, so stick with me and keep reading. Your goal should be to use less than 30 percent of the credit given to you. I know that can be challenging at times. When you find yourself over 30 percent, pay down as much of it as you can.

Even if you cannot pay the full amount, make sure you pay at least the minimum payment. If you do not pay the minimum payment, you will incur fees. Often, the credit card company increases your percentage rate and it impacts your credit score. Make sure you do not open too many credit card accounts at one time. This could cause your credit score to decrease. You can also be denied simply because you have applied for too many cards in too short a time.

What Is Credit?

I want to talk about credit for a moment. It is important that you understand this concept of credit. If you do not understand what it is, you probably will not be able to build a positive credit history. Your credit history is a listing of all of the money you have borrowed and from where over the past 7 to 10 years. Bet you are thinking, “I have not borrowed any money” or “I am not old enough to have credit history”. Those are real problems and concerns for college students. This is precisely why there are items such as student credit cards.

Your credit report is what lists all of that credit history. It is actually a detailed listing of more than just any money you have borrowed. It lists addresses that you have used, as well as names that you have used. There is probably way more information on your credit report than you realize. There are three credit bureaus that report information to your credit report. Those credit bureaus are TransUnion, Experian, and Equifax. Unfortunately, not all of the credit bureaus receive information from all of your creditors.

A key piece of information that appears on your credit report is your credit score. This is a three digit number that gives creditors and lenders an idea of your creditworthiness. The most common credit score is the FICO score and falls between 350 to 850. Most people have a credit score between 600 to 750. Good credit falls between 670 to 800. Anything below 570 is the danger zone of bad credit.

What If I Do Not Have Credit?

This is a typical predicament for college students, or those in their late teens and early twenties. It is a common problem, right? If you do not have a credit history, then you have a low credit score. You cannot build credit history because you cannot get credit because you have a low credit score. So what do you do?

The answer is start small. While it may seem frustrating at first, once you take small steps to build credit history, you begin to build it quickly. The other key is start small and be smart about what you do to build your credit. I am going to list some tips on how to build credit and how to take care of it.

You can get student credit cards. These are credit cards geared for students and with them in mind. The credit card companies understand that students do not have a strong credit history. As a result, they offer them cards that have low available balances to get them started towards building credit. The key is to only use small amounts of the credit at a time and pay off the credit card each month. This will help you build a positive credit history and will not get you into a place where you cannot pay off your debt.

You may have to get a secured credit card first. These types of cards are perfect for people with no credit. These cards are intended to help people build credit. A secured credit card comes from a bank and has your own money behind it. You deposit money into an account. The credit card uses money from that account. Your available limit on a secured credit card is based on the amount of money in the account. When you make payments on this credit card, it positively impacts your credit score and helps you build credit.

What Are Other Ways That I Can Build Credit?

There are some ways other than student credit cards to build credit. You can get a student loan. These loans are available to students and lenders understand that these students do not usually have credit. They are a great way to begin to build credit by making monthly payments. Whatever types of credit you do get, make sure you pay the bills on time. One of the top reasons for poor credit it late or missed payments. It is important to pay all of your bills on time. While bills such as insurance, utilities, and even cell phone do not report to the credit bureaus every time you make a payment, they do report if you do not make a payment.

This gets tricky because paying them timely does not help your credit. However, not paying them absolutely hurts your credit. You can request a third party report these payments to the credit bureaus, but they do charge you to do that. This may be something that you want to consider if you are looking for ways to build up positive credit. You can purchase a car as a way to build credit. This is often something that a recent college graduate does. If you cannot get a loan on your own, you can have a co signer on the loan.

This is helpful when you have little or bad credit. You should make sure this person has a good credit history. When you pay your monthly payments, it helps you build your credit history. You should keep in mind that if you do not make your payments, it becomes the responsibility of the co signer to make them. If you do not pay the loan, it negatively impacts your co signer’s credit as well as yours.

Advantages Of Credit Cards

There are some advantages to having student credit cards. It truly depends on how well you use your credit card. A credit card can give you some flexibility in your spending. It can help you build credit and teach you smart habits. A credit allows you to potentially keep money in the bank and let it accrue interest while you purchase items today and pay for them within 30 days. It also allows you to make a large purchase today even though you may not have all the cash.

A credit card can also be a safe way to make purchases instead of using a debit card. If the information is stolen, it is not your money in the bank that is being used. It still stinks to have a credit card and your information stolen. When it is a credit card, you can freeze that account so no one else can access it and it is not your money that is frozen. When you pay off your credit card balance each month, it is an effective money management tool. It allows you to be in control of your money.

Disadvantages Of Credit Cards

There are also some major disadvantage to having student credit cards. The major disadvantage is the debt part. As you all know the debt in the US just continues to rise. College students rarely come out of college without any debt these days. The average cost of college is also rising which adds to the average college debt.

As I stated above, credit cards are a great tool to manage money. However, you need to remain in control of your credit cards and your money. Using credit cards is a slippery slope to finding yourself in a puddle of uncontrollable debt. You need to stay on top of your spending, your available credit card balance and the amount that you owe. If you see that the amount you owe is climbing, you need to get control of it. You cannot ignore it if the number continues to increase and you feel you are unable to pay your debt. At that point, you should stop using your credit card and make a large effort to pay the bill.

Are Student Credit Cards Different?

The only real difference with student credit cards is that they are marketed towards students. They are the same as a credit card that is not marketed to students, but they typically have a lower credit card limit. These cards are usually ones for which a student will get approved. It helps to keep students and their spending in check. It may be a challenge for students to understand how to manage their credit at first. The limits are kept low so that they do not get themselves into too much trouble.

Sometimes these cards offer special rewards and promotions to students such as rewards for good grades. Discover offers a student card that lets students earn a $20 credit on their statement if they get at least a 3.0 GPA. They are eligible for this reward for the first five years that they have the card. Sometimes, students are also eligible for an introductory rate of 0 percent interest. This special offer does not last as long as it would on a non student card, but it is a nice perk to have for a while. After that the interest rate goes up to anywhere between 14 percent and 24 percent interest.

What Are Student Loans?

Student loans are a serious consideration for all students. While both student loans and student credit cards are ways to manage money, they are very different ways. Student loans are money you borrow to pay for school that you promise to repay. The lender charges you interest as a fee for lending you the money. There are different lenders for student loans and each one has a separate set of benefits. There are different rules and limitations based on if you are a graduate or undergraduate student. Professional working students and parents may also have some different considerations when it comes to loans for them. You do not have to make any payments on most student loans until you graduate or reduce your credits to become a part time student. That is not the case for all loans, so be sure to read all the fine print.

Many student loans have a flexible plan for repayment or have easy rules to postpone repayment. You usually receive a lower interest rate on student loans and you may not need to have a credit check. Most student loans are fixed interest, which means whatever the interest rate is when you sign the paperwork is locked in and will not change. Students should always so some student loan shopping to make sure they find the best loan for their needs.


Are There Different Types of Student Loans?

When you are thinking about student loans, you often only think of loans specifically to pay for tuition, books, room and board. However, there are other expenses that students have. Many of them use student credit cards to pay their other needs, such as toiletries and vitamins and other every day expenses. Students may also have needs for equipment or even travel.

I know you might be thinking, travel what?, they are supposed to be in school learning. Stop and think for a second how hard most students work in school. Some students all they do is go to class, study, and work. They need a break, too. Even if it might be a quick weekend trip. Even if you do not agree that they need time to relax, it is nice to know that there are options such as loans for travel. A travel loan is basically a personal loan. Like a student loan, these loans happen when a lender agrees to let the student borrow the money. The student promises to repay the loan by making regular monthly payments.

Here is where it gets tricky and where personal loans differ from student loans. A personal loan must be paid back immediately. There is not deferring payment. Also, interest rates tend to be higher on personal loans than on student loans. Lenders of a personal loan also do a credit check so for this type of loan, your credit matters.

Can Student Loans Be Forgiven?

There are some strict requirements around which types of loans that can be forgiven and when. There are two major student loan forgiveness plans for student loans. These plans do not apply to student credit cards. One is for those who enter into public service jobs. This forgiveness plan only starts after you have made 120 payments, which is about 10 years of payments. You also must work for a specific employer, such as a volunteer for AmeriCorps or the Peace Corps, or some other government agencies. There are some other employers that qualify as well and you may be able to get the rest of your federal direct loan forgiven.

Teachers may also be able to get their loans forgiven. They must work for a qualifying school for a least five years. They may be able to receive from $5,000 to $17,500 in loan forgiveness. Studentloans.gov can provide you all the information that you need to determine if your loans can be forgiven. It does not hurt to take a look at the qualifications.

Should I Get A Student Loan?

This is a question that only you, and maybe your parents, can answer. You have to do what works best for your current situation. I would make that recommendation that you carefully consider taking on a loan or student credit cards. It is easy to think, I know I will get a job when I graduate and I will be able to pay back this loan. However, you might not. It is fairly easy for a full time student in college to obtain a student loan. I caution you to consider this. Just because you can, does not always mean that you should. You should use this same consideration for student credit cards.

I know when looking at the cost of college, it is easy to become overwhelmed by the price tag. We already know that the average student debt is high. Student loans and student credit cards add to that figure. Before you take on any debt, consider how much money you need. You should make sure that you have exhausted all of your options for scholarships and grants before taking on debt. There are many scholarships available, more than you realize. You should do all of your research first before you assume that taking on debt is the only answer for you. Perhaps you are able to make up the difference with a part time job. You may not be able to, but at least know that for sure before you agree to a loan.

Conclusion

As I stated at the beginning of this article, being a college student is hard today. I would not want to be in that place again. The cost of everything is rising while earnings are decreasing. There is a large appeal for student credit cards and loans. We live in a world where we want more stuff and we want it now. Before you give into the allure of what appears to be free money. Remember it is not and you must pay it all back.

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Traditional Student Loan Versus An Income Share Agreement

College is expensive. I am sure you are thinking ‘yeah, no kidding’. There is not a student (or parent of a student) out there thinking about college that is not also thinking about how to pay for it. According to Educationdata, the average cost of tuition in 2022 was around $35,807 for private institutions and close to $10,000 for in-state residents at public schools. Fortunately, students can find help to pay for college in the way of student loans. There is another tool available that many may not know about and that is income share agreements. Continue reading to find out more about traditional student loan versus an income share and how each option may be beneficial to you.

What Is A Student Loan?

When considering a traditional student loan versus an income share, it is important to fully understand the difference between the two. A student loan is money you borrow to pay for school that you promise to repay with interest. Loans can come from different sources and there are benefits to each one. The amount of money you can borrow depends on if you are an undergraduate or graduate student. It also depends on if you are a parent or a professional working student. You do not have to repay most student loans until you either graduate from college or become a part-time student. However, some lenders expect repayment immediately. Most loans have flexible repayment plans and are easy to finance or postpone.

Typically the interest rate on a student loan is fixed and lower than most other interest rates. Often you may not need a credit check to have a student loan approved. When making the decision about applying for loans to pay for college, weigh all of your options carefully. It may not impact you today, or while you are in school, but it will. You have to pay back the loans once you graduate and the decisions you made years earlier may come back to haunt you.

What Are The Different Types Of Student Loans?

When considering traditional student loan versus an income share, you should know the different types of student loans. The main two categories of student loans are federal student loans and private student loans. There are some differences of which you should be aware. Federal loans come from the federal government. Private loans come from a bank or any other private financial source. No matter from where the loan comes, be sure to understand all the details of the loan.

With a federal loan, you do not make payments until you graduate, leave school completely, or become a part time student. Some private student loans require payment fight away, but may have an option to defer payments. Federal loan interest rates are fixed and typically lower than any other loans. Private loans may have either a fixed or variable rate. They could be the lowest interest option, but rarely is that the case.

Often times, federal loans may have subsidies for those who meet financial requirements. In those cases, some or all of the interest on your loan is paid for you while you are in school. Private loans rarely, if ever, offer any type of subsidy. Private loans typically require a credit check and want you to have credit established or a cosigner. Most federal loans, except PLUS, do not require credit checks.

Private vs federal loans

What is An Income Share Agreement?

Income share agreements may be something about which you know little. An income share agreement is typically set up with the school in which you plan to attend but can be another institution, where you agree to pay the tuition later when you have a job. You are borrowing the money for your tuition and agreeing to pay your tuition with a percentage of your future earnings. In a sense, you are using yourself as equity.

You are saying that the education you get today provides you the opportunity to gain employment that allows you to repay the loan. The amount you can borrow depends on your major and the length of the loan. Keep in mind, the school is projecting how much money you will make if you find a job. The amount you are able to borrow may not cover your tuition needs, so you might have to get another type of loan.

Are There Benefits To Student Loans?

One might say that a major benefit to any type of student loan is you are getting money today to go to school. For some, that is enough. The plan to figure it out later. They feel that if they do not go to college, they will not be able to get a job or be stuck where they are. They would rather risk taking on debt to try to secure themselves a future. That is a definite benefit to student loans. When students consider traditional student loan versus an income share, they may only look at who is going to give them the most money all at once.

Believe it or not, the federal government often offers the best loan terms. Do not shut down that option before looking at the details. However, that does not mean you should only consider a federal loan. You need to consider all of your options. That includes scholarships, grants, and work study. There may be other ways for you to get money to go to school. You need to put all your options all the table, look at the benefits and negatives and make decisions that are in your best interest.

Pros and cons of student loans

Are There Benefits To An Income Share Agreement?

The intention of income share agreements is to provide you the money you need for school with the promise to repay the loan once you have a job. It intends to keep you from having to pay a ridiculous amount each month in student loan debt. It caps the amount you pay back per year by making it a percentage of your earnings.

If you get a raise, the percentage does not change, but the amount you repay does because you earnings increased. No matter how you slice it, you have to pay back money. If you are like most college students, your income is going to be low, much lower than you think it should be. If you are like most college students upon graduation, you will feel weighed down by the burden of your school debt.

Unfortunately, there may not be anything you can do about that, unless you manage to leave school with no debt or loans. If you come from a wealthy family, that may happen for you.

However, if you are like most college students, that is not the case and you will have debt. As I stated many times in the article, you have to do what is best for you and your particular circumstance. Any size does not fit all and what works for your bestie may not be right for you. Educate yourself on all of your options before making a decision.

What Are The Negatives To Student Loans?

When thinking about traditional student loan versus an income share, the one thing that remains true about both of them is they are a type of loan. When you borrow money, you must repay it at some point. That has to be the biggest negative to student loans…paying them back. Depending on the type of loan, you may be able to defer the repayment but there always comes a point when you need to pay it back. Really, there probably is never a good time. Unless you have found the job of your dreams making a ton of money and you have extra money to spare. It is a great dream, but unlikely to happen. For your sake, I hope it does.

A student loan could possibly hurt your credit score. We will talk in depth about that a little further down. In general, if you stay on top of your payments, it should not hurt too much. Student loans are a burden. They are a burden to you, your parents and our economy. That is the largest downside to the trillions of dollars in student loan debt.

The Downside to Income Share Agreement

I have talked quite a bit about student loans in general. When it comes to the traditional student loan versus an income share debate, there seems to be more negatives to an income share agreement. Ok, maybe that is not fair. The better way to say it is there are more positives to a federal loan than an income share agreement.

The major downsides to an income share agreement is the limit on funding you receive. Each school has a cap, which varies from school to school, on how much they loan a student. Most likely, this amount does not cover tuition for a year. That means you have to find other ways to make up the difference. Perhaps it is not a significant amount and you find a job that pays you enough. Maybe your parents can pay the difference. But, what if none of that applies to you? Then you need to get another loan. So in addition to the income share agreement, which, let’s be real, is a loan, you need to get another loan. Upon graduation, you have multiple loans you must pay. Federal loans tend to be incredibly flexible in payment amount and when you start, but income share agreements may not have that same freedom.

What Makes The Most Sense For Me?

I hope I have been successful at driving home the point that there is no right answer for everyone. The best thing looks a little different for each person. When you are deciding about traditional student loan versus an income share, keep yourself in mind. You must consider your finances today and the goals you hope to achieve in the future.

Keep in mind, you are making decisions based upon what you want in your future. You are guessing about the type of job you have and the salary that goes along with you. I know you all have dreams, but when making decisions about college loans, you have to think realistically. Otherwise, you may set yourself up for a large amount of debt that you are not able to repay.

Yes, it is true, federal loans are a little more forgiving. As surprising as that is, it is true. They work with you to create a repayment plan that works for you. They are willing to defer more often based on your circumstances. In some cases, with specific rules, they may completely forgive a portion of the loan so you do not have to repay all of it.

What If I Can’t Find A Job After College?

When talking about paying back a traditional student loan versus an income share, you should attempt to pay the payments you can. Student loan debt is an astonishing plague on recent graduates. You want to do everything you can to pay it off as soon as you can. Hopefully, you can find a job in your field and begin your career path. If you are not able to do that and you cannot pay the bills with the job you have, what do you do?

I am going to start by telling you what not to do. Do not ignore your loans. Do not ignore your debts. You either must pay them or contact the lender and set up some other type of agreement. You should never just ignore them. That is a bad idea. In as short as 90 days, your loans are delinquent and you start getting late fees. The lender most likely reports your late or missing payments to the credit bureaus. Then the phone calls begin.

In six months, you officially are in default. When this happens, your balance is due immediately. Not only that, but chances are no one can help you by deferring your payments or creating some other type of payment plan. The sad thing about this is, if you just contact the lender, you can do something. You can defer your payments until you are more stable financially. You may be able to set up a different payment plan allowing you to pay less money per month. I encourage you to take that approach if you find yourself in this position.

Can I Refinance My Student Loans?

You might be able to, depending on the type of loan you have. The amount of average college debt is astounding. The cost of higher education is to blame for this inflated debt. Americans owe roughly $1.5 trillion in student loan debt. That is just crazy.

The first thing you should know about federal loans is that you cannot refinance them. These interest rates are set by Congress and become law. Your credit score, no matter how good it is, does not change your interest rate on a federal student loan. However, you may be able to refinance your federal loan into a private loan. You should only do this if you can find a better deal than the current interest rate on your federal loan.

You should use a loan refinance calculator to determine if you can find a better rate. This is a tool where you enter your current loan information, including how much you owe and the interest rate. This tool may also ask you what you believe your credit score is currently. The calculator gives you a list of potential lenders that offer a better deal than what you currently have. Keep in mind that when you refinance a loan, it changes the terms of the loan. That means if you current loan takes you two years to repay it, refinancing it may take you four years to repay it. You must always look at all the details before agreeing to refinance your loan to ensure it is a better deal for you.

What Are The Impacts On My Credit?

When considering a traditional student loan versus an income share and the impacts to your credit score, it is important to know that they can impact your credit in the same way. As long as you pay back your loans timely, it should not impact your credit score at all. The key is to make regular payments on time for the full monthly amount. Another item of note is that when you make regular timely payments, that can positively impact your credit score. Those payments may help your credit score increase.

The key here is the same with any type of loan or bill that you have. If you pay them on time and for the full amount, it typically does not hurt your credit. When you do not make regular and timely payments, the effects are devastating. Not only does it hit your credit hard, but it adds stress to your life.

Once you credit score has been negatively impacted, it takes hard work to improve it. In addition, you may not be able to get other lines of credit for a house or car. You may not be able to get car insurance. It may interfere with your ability to rent an apartment. When you do not pay your student loans, it has far reaching implications. It impacts things that you probably have not even considered. You want to do everything you can to pay your student loans on time each month.

How Can A Budget Help Me?

It always comes back to the budget, doesn’t it? It seems that no matter the subject, having a budget is always a good idea. I know it is hard when you are not making a ton of money to even consider a budget. Truthfully, this is the best time for you to start one. There are plenty of application available to you to help you create a budget.  Right now, you (hopefully) do not have many bills. I realize you may not have much income either, but that is exactly why a budget can help you.

You write down all of your expenses and all your income. After you have listed all expenses, see if there are any that you can get rid of. Do you have a gym membership or subscriptions you are not using? Cancel them immediately. That is a quick way to clean up your budget. Are you spending money on useless things? Now is the time to stop. Before you begin to create some really bad habits or get used to a certain lifestyle, cut those items.

When you create a budget, include a percentage of your income that automatically goes to savings. Make sure it is a percentage. That way as your income increases so does the amount of money you are saving each month. Trust me when I tell you, now is the time to start. Create these healthy financial habits and you will not regret it. Yes, it may be difficult at first, but it will be worth it. Once you get used to living with less money and your savings grow, you will be so happy you did it.

Conclusion

One last point I would like to note that I have not mentioned, any student loan payments you make may be tax-deductible for you. Make sure you have a 1098 e form that shows all payments you have made so that you can claim that deductions on your taxes. I gave you a lot of information to consider about student loans. It can seem overwhelming, I know. I am sure that you do not want to make the wrong choice. Believe me, I completely understand. Making lifelong financial decisions are tough. They should be.

You do not want to make any of these decisions without thoroughly thinking through them. You want to weight the good and the bad and make a sound decision. Be sure you understand all aspects of your loan options. If you do not fully understand them, talk to a student loan planner. That person has a vast amount of knowledge to help you make the right choices. There is no shame in reaching out to someone who has more knowledge than you to get all the information you need.

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