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Graduates Beware! Do Not Consolidate Student Loans Without Proper Research!

Are you a student thinking about loan consolidation? You must conduct proper research prior to consolidating your student loans. Loan consolidation is not an easy task and requires careful consideration and research. It is essential that you equip yourself with proper knowledge and information about student loan consolidation in order to avail the best possible consolidation plan perfect for your needs.

Why Consolidate Student Loans?

A great scholar once said three kinds of things are a source of happiness for individuals – Good Health, Freedom from Debt and Clear Conscious. Student loan consolidation is the Holy Grail for debt-ridden students that help them attain that elusive happiness. It provides relief from the burden of debt and prevents defaulting on these loans.

Loan consolidation provides numerous benefits to students. Some of these benefits include:
1. Fixates interest rates for the duration of the loan
2. Consolidates multiple loan payments into single monthly payment
3. Offers the flexibility of paying loan amounts according to monthly income
4. Does not require good credit score to qualify for the consolidation plan
5. Enables you to set your financial goals for gradual retirement of the loan amount

Read these effective tips on student loan consolidation to understand how to get the best terms and conditions for refinancing the loans to match your needs.

Research Tip #1 Find out the Impact of Consolidating Student Loans
Before consolidating the loans, you should find out the effect of merging multiple loans with different terms and conditions. Sometimes the different interest rate on these loans increases the debt burden on consolidating the loans.
For example, consolidation of Harvard and Perkins loans results in increased interest payment rather than reduce payments on consolidation. Whereas, Stafford loans can easily be consolidated without losing any benefit of consolidation.
Hence, you should research properly and determine the impact of consolidating the loans before applying for the program.

Research Tip #2: Avoid Joint Consolidation of Loans
Join consolidation refers to merging student loans of two or more individuals. In case you and your spouse are both burdened with student debt, you should research properly before considering the option of joint consolidation. Instead of sharing the debt burden, joint consolidation doubles the strain of financing the loan in the long term. The reason is that joint consolidation treats the partners as two individuals and not one. So, in cases of unemployment or uneventful demise of one of the partners they cannot apply for deferment of payment unless both of them become unemployed or pass away. Furthermore, in cases of divorce, it will create difficulties in case one ex-partner does not pay the required amount on time.

Research Tip #3 Find out Tax Benefits on Student Loans
US citizens can avail tax reduction according to IRS income form 1040 and 1040A. You should study these sections properly to find out how much tax benefit you can avail apropos to your student loans. Through proper research, you can find out how to avail tax reduction of as much as $2,500 to your student loans.

The task of consolidating the loans can be a difficult process for most students. That is why a professional student loan consolidation experts can help you maximize the benefits associated with consolidating the loans. These experts can provide qualified advice and guidance so that you can obtain the most advantageous refinance terms and conditions on student loan consolidation.

Graduates

Top 5 Advantages of Consolidating Student Loan Debt

Graduation is no doubt one of the most memorable moments in a person’s life. It signals closing stages of the carefree life that we have become accustomed to and entering a more responsible phase of adulthood. However, graduation day also reminds us of the fact that the grace period for paying off those student loans is about to end after which you have to start making payments to back the loans.

Various financial assistance programs are available for graduates, to assist them with making payments on their student loans. Consolidating student loan debt offers various benefits in financing the loans.

Benefit #1: Streamlined Payment Process
One of the foremost benefits of consolidating student loan debt is that it streamlines your monthly loan payments. How is that possible? Consolidating the loans merges you previous loans into one single amount that you have to pay at a specified period. The lender who consolidates your loans will take care of you previous loans and issue a new loan with better loan terms and conditions. A streamlined payment process makes it easy for you to finance the loan and avoid the prospect of defaulting on payments, which has various repercussions.

Benefit #2: Reduced Interest Rates on Loans
Consolidating the loans usually results in reduced interest rates. Consolidating student loan debt entails a new interest rate that is calculated from the interest rates of previous loans. This normally results in overall reduction in interest payments on loans.

Benefit #3: Tax Benefits and Relief
Another benefit of consolidation loans is that it is tax deductible. This can offer savings in excess of $2,000. (Please refer to IRS Publication 970 chapter four for more details!) This greatly eases the debt burden and prevents defaulting.

Benefit #4: Extension in Repayment Term
Consolidating student loan debt also extends the payment period of loans, ultimately resulting in reduced monthly payments. This extended payment period means that you do not have to fret over any looming deadlines and that you can focus on making payments for the loan amount. This also allows you to save money for such necessities of life like your own home, retirement income, and a car.

Benefit #5: Fixed Interest Rate for the Loan Term
Student loan consolidation fixates interest rates for the duration of the loan. This allows you the luxury of knowing the exact monthly amount you have to pay to pay back your loans. You save yourself from any surprise increases in interest rates that might make financing a loan difficult.

The tasks and paper work required in student loan consolidation can be overwhelming and complex for many people. In order to obtain maximum benefit from consolidating your loans, it is important that you should get professional guidance and advice. Qualify with a service provider and see how you can benefit.

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Recognize the Downside Consolidating Student Loan Debt

If you are burdened with federal or private student loans, you may have heard about student loan consolidation programs that can offer relief from your debt. But before you apply for a loan assistance program, it is imperative that you know the cons of consolidating student loan debt. Understanding certain aspects of the student loan consolidation program helps you to gain greater benefits from the student loan program. Knowing the drawbacks of consolidating student loan debt will allow you to get a clear picture of getting optimal refinance terms and conditions suitable for your needs.

Drawback #1: Your Loan Amount May Increase on Consolidation

One of the cons attached with student loan consolidation is that the actual loan amount increases with consolidation. You get relief only in the form of lengthening the duration of the loans thereby paying reduced monthly installments on the loan. The overall loan amount increases as you might have to pay greater interest payment when you consolidate your loans.

However, the good news is that you could end up paying a lower interest rate on the consolidated loans. When you consolidate the loans, a new loan is created with revised terms and conditions. So, with proper research and guidance, you can agree on the “right” loan term and rates from the lenders. In addition, consolidated loans are tax deductible which means that you can save more than $2000 on the process.

Disadvantage #2: Your Loan May Get Locked Up with Fixed Interest Rate

Another drawback of student loan consolidation is that your loan amount may become locked with a fixed interest rate. Consolidation involves taking a weighted average of previous loans and fixes a new interest rate for the duration of the loan. Although this provides protection against rising interest rates in the future, you may not benefit if there is a decrease in interest rate.

However, fixing the interest rate allows you to know exactly how much payment you have to make without any surprises. You can effectively budget your finances with the peace of mind that the monthly loan payment will not increase in the future impacting other vital expenses. Consolidating your federal and private loans provides you with much needed financial relief and assistance. It gives you the flexibility of financing your outstanding loan and making payments for the necessities of life without much difficulty.
Are you qualified for student loan consolidation? Click here to see if you qualify for student debt relief.

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Obama’s PAYE Student Loan Forgiveness Makes Education Less Burdensome

President Obama announced a brand new set of executive actions that will help lift the burden of student loan debt. Also promised is a radical expansion in the criteria for the alternative student loan repayment program.

An unprecedented number of students are now dependent on student loans to pay for their college education. This is probably the biggest reason why our government believed that actions were necessary to expand educational opportunities to all Americans, making it easier and more manageable for the students to pay off their loans.

Introduced in 2011, the original Pay As You Earn, student loan forgiveness program was providing affordable loan repayment services to 1.6 million borrowers; however, this new amendment will increase its reach to nearly 5 million potential borrowers.

Here’s What Will Happen under the New Rules:

The new executive order will further ease the college debt troubles by allowing borrowers to cap their payments at 10 percent of their monthly income. Quite a number of borrowers already had this facility. This time around, the order includes 5 million more people who weren’t covered previously, and they also include people who got their loans before October 2007.

President Obama’s alternative payment plan helps students in a variety of ways. For example, public-sector employees with regular, on-time payments may see their debts forgiven after some time. Similarly, teachers can also apply to have the rest of their debt cancelled after 10 years of regular payments. While low-income borrowers may see their balance canceled after 20 to 25 years of on-time payments.

The fact of the matter is that many student loan borrowers are working hard and being responsible about their monthly payments, but the debt still remains a very real struggle for them.

President Obama’s student loan forgiveness programs are processed and made available to borrowers now. Click Here for more info.

Erie-area woman takes rare route over student loans: bankruptcy

By Ed Palattella, Erie Times-News, Pa. McClatchy-Tribune Information Services

Sept. 21–Mary L. Morgan graduated from Mercyhurst College in 1993 with an associate degree in business management and $11,830 in student loan debt.

Twenty-one years later, the debt has doubled as Morgan has struggled to repay it.

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Flood of debt

Morgan’s request for relief in Bankruptcy Court coincides with the national debate over whether the student-loan system needs reform.

President Barack Obama over the summer expanded the Pay-As-You-Earn repayment plan for student loans, and several lawmakers have proposed other changes to address rising student loan debt.

Outside of mortgages, student loan debt — $1.12 trillion as of June 30 — is the largest form of debt in the United States, larger than debt for auto loans and credit card debt, according to the Federal Reserve Bank of New York, which studies student loans.

“Student loan debt is the only form of consumer debt that has grown since the peak of consumer debt in 2008,” the New York Fed reported in March 2013.

The bank and others have also pointed to a rise in student loan debt among older Americans, who, like the younger Morgan, have yet to pay off loans they got to attend college.

“The percentage of households headed by those aged 65 to 74 having student debt grew from about 1 percent in 2004 to about 4 percent in 2010,” theGovernment Accountability Office reported on Sept. 10.

“While those 65 and older account for a small fraction of the total amount of outstanding federal student debt, the outstanding federal student debt for this age group grew from about $2.8 billion in 2005 to about $18.2 billion in 2013.”

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Meeting a test

Before the mid-1970s, student loans were dischargeable in bankruptcy cases like any other debt, such as an auto loan or credit card debt. Congress, concerned about the potential for the fraudulent discharge of student loans, restricted their discharge when it introduced the current Bankruptcy Code in 1978.

Congress has since increased the limits on the discharge of student loan debt, with “undue hardship” as the exception.

Congress has never defined what constitutes “undue hardship,” leaving the determination to the federal bankruptcy judges. They have adopted what is known as the Brunner test, named after a 1987 case out of New York.

Under the test, “undue hardship” exists if:

– “The debtor cannot maintain, based on current income and expenses, a minimal standard of living for himself and his dependents if forced to repay the loans.”

– “Additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the student loan repayment period.”

– “The debtor has made good faith efforts to repay the loans.”

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College debt leaves Generation X grads less wealthy than parents

Most college-educated 30- and 40-somethings earn more than their parents did at the same age, yet they’re saving less. Student debt is partly to blame.

While 82 percent of Generation X Americans with at least a bachelor’s degree earn more than their parents did, just 30 percent have greater wealth. A smaller share of workers without college education — 70 percent — have surpassed their parents’ incomes yet almost half had higher wealth, according to a Pew Charitable Trusts report released today.

Lackluster saving among the cohort, those born between 1965 and 1980, has come as student-loan balances persist into middle age. Generation X’s financial straits could come with economic aftershocks, making it difficult for parents to afford college for the next generation and forcing workers to hold onto jobs longer or lower their living standards as they age.

“They may not be financially secure as they approach retirement,” said Diana Elliott, research manager at Pew’s Economic Mobility Project. “To the extent that Gen Xers are still paying student loan debt, don’t have the wealth accumulated to invest in themselves, they also don’t have that money to invest in their children.”

Pew researches used Panel Study of Income Dynamics data spanning 1968 to 2011 to follow parent-child pairs through part of their economic life cycle.

College graduates in Generation X have far more debt than their peers without degrees, the study found. A typical degree holder who earned more than his or her parents had $13,000 in debt in 2011, more than double the $6,000 in debt held by those with less education.

Student Loans

While credit cards also played a role, student loans are a big contributor to that debt load: Four in 10 upwardly income-mobile college grads hold education debt, with a median balance of $25,000, according to the Pew report.

College graduates tend to come from families with more wealth, so they have a higher bar for surpassing the prior generation than those with lesser education, the report notes.

Overall, three-quarters of Generation X households had family incomes higher than their parents did after adjusting for family size, the Pew report found. Even so, just 36 percent had exceeded their parents’ wealth.

The typical household had $5,000 less wealth than their parents did at the same age, once debts were subtracted from assets.

Less Wealth

Erica Allen owes far more than her mother ever did and holds less wealth, even though she earns more. The 43-year-old from Blythewood, South Carolina, has $40,000 in student loans after studying at Winthrop University in Rock Hill, South Carolina. She’s racked up another $20,000 in education debt for her son, a 22-year-old college senior.

“It’s really been awful,” said Allen, who gave up her studies in 2008 to work at Verizon Wireless as a global technical support coordinator. She lives with a roommate to save on rent and drives a 1999 Chevrolet Cavalier that she bought for $900, because she can’t afford a car payment. “I have two garnishments from student loans, and that’s 15 percent of my income. That’s substantial.”

The student loans dragging on Allen’s wealth underscore a new reality in U.S. higher education.

“As the costs that students and families are expected to cover outpace family incomes and available grants, student loans have become and more and more of a necessity,” said Lauren Asher, president of the Institute for College Access & Success, a nonprofit with offices in Oakland,California.

College Costs

People between the ages of 30 and 39 held about $321 billion in total student debt at the end of 2012, up from about $124 billion at the start of 2005, according to data from the Federal Reserve Bank of New York. Those between 40 and 49 owed $168 billion, up from $53 billion.

The average student-loan balance for the 30- to 39-year-old cohort climbed to $29,400 — the most of any age group — from about $20,000 in 2005. Such large and persistent student debt balances could have lasting economic legacies, Asher said.

“Carrying student loans for a long time, and carrying a lot of student loans, can effect choices now and into the future — when you feel like you can get married and start a family, buy a house, save for retirement,” she said. “Those are challenges that can extend into your 30s and 40s.”

Millennial Implications

Generation X’s plight could paint a grim picture for the millennial generation, those born after 1980, as they too take on debt in response to swelling college tuitions.

Kate Curtis-Bozio, 31 and from Woburn, Massachusetts, is among millennials struggling to gain financial security as she works to pay back the $44,000 in student loans she took out while pursuing her master’s degree.

“Financially, we can’t even plan to have any children right now, because we know how expensive it is for childcare,” said Curtis-Bozio, who is married. She works in crime analysis and mapping at a local police department during the week, and is a restaurant hostess on weekends in order to make her monthly loan payments.

“I worked there throughout grad school, and I was planning on getting rid of it when I got a full-time job,” she said. “Once I started paying back, I realized I can’t afford to get rid of this job.”

America’s youngest workers — people like Curtis-Bozio — have time to build wealth and right the ship, Neil Howe, who studies generations and co-coined the term “millennial,” said at a media event Pew held in Washington. That might not be true of their older counterparts, who are well into their economic lifecycle.

“The generation I worry about is Gen Xers,” Howe said.

Via Bloomberg News

 

Great, Now We Can Look Forward To Being Saddled With Student Debt Even In Retirement

Here’s a stressful thought: Now more seniors are carrying college loan debt well into retirement.

The debt held by seniors grew to $18.2 billion in 2013, up from $2.8 billion in 2005, according to a recent report released by the Government Accountability Office.

The chart below shows how the portion of federal student loans held by people ages 65 and older has increased since 2005:

Most of the college debt carried by seniors in retirement, about 80 percent, comes from loans they took out for their own education. The other 20 percent of the debt was for loans seniors had taken to pay for education for their children or other dependents, the Washington Post

Via Washington Post

The Great Delay: Student Loan Debt and Homeownership

By Josh Miller

A record number of millennials, individuals aged 18 to 34 years, are delaying household formation. This Great Delay, instead of the forbearance of impending doom, may actually be a sign of prudent economic decision making from a generation coming of age during turbulent economic times. Instead of forming a household, many have enrolled in college or stayed in school to pursue a college degree. This personal investment has short-run and long-run implications of great interest to the housing market.

When young Americans delay household formation, they often delay renting or buying a home. The relationship between the Great Delay and the housing market is most clearly seen in the record number living with their parents and the decline in homeownership rates among Milennials. For example, the U.S. Census Bureau quarterly survey of housing vacancy and homeownership shows that for adults under the age of 35 the homeownership rate dropped from a record high 43.6 percent in the second quarter of 2004 to its current record low of 36.2 percent in the first quarter of 2014.

The decline in the homeownership rate can be partly attributed to long-run demographic trends. Researchers point out that Americans, on average, are waiting 5 years longer to get married when compared to 1970. Additionally, Americans are waiting longer to have children. The average age at first birth in 2006 was 25 compared to the average age at first birth age of 21 in 1970.

The decline in the homeownership rate is also the result of short-run economic conditions. Facing poor earning potential without a college degree a record number enrolled in college; 38.9% of individuals aged 18 to 24 years in 2012. In addition, student loan debt soared to an average of $29,400 per borrower for the class of 2012, growing at an annual rate of 6% from 2007 to 2012.

The increase in college enrollment has significant implications on the future economic well-being of young adults. On one hand, those with a college degree have higher earning potential than those without a college degree, increasing both economic well-being and the likelihood one purchases a home. On the other hand, the increased reliance on debt to finance college attendance may crowd out home purchases.

Research shows an association between student loan debt and homeownership. At the national level, student loan debt increased while homeownership rate among those under the age of 35 years decreased. In additional, a recent study finds an association between the level of student loan debt and the probability of owning a home.

These studies describe the trend in economic conditions, student loan debt, and homeownership in the short-run. The studies, however, do not provide evidence that an increases in student loan debt decrease a borrower’s desire or ability to ever own a home. Instead, the dream of homeownership remains strong as evidenced by several recently conducted attitudinal surveys.

To isolate the relationship between student loan debt and homeownership in the long-run more research is needed. Researchers will also need to carefully consider the appropriate research question and appropriate policy prescriptions. The discussion must not lose sight of that fact that a college education in general is a sound investment in human capital and that the middle class holds most of its capital in housing. In fact, a recent study found that the cost of not going to college is rising faster than the cost of going to college. There appears to be a relationship between student loan debt and homeownership. However, homeownership and college education are far from a mutually exclusive concept.

View this original post on NAHB’s blog, Eye on Housing

Pay As You Earn: New Affordable Loan Repayment Plans

A few days ago, we saw President Obama announce a brand new set of executive actions that will help lift the burden of student loan debt. Also promised is a radical expansion in the criteria for the alternative student loan repayment program.

An unprecedented number of students are now dependent on student loans to pay for their college education. This is probably the biggest reason why our government believed that actions were necessary to expand educational opportunities to all Americans, making it easier and more manageable for the students to pay off their loans.

Introduced in 2011, the original Pay As You Earn program was providing affordable loan repayment services to 1.6 million borrowers; however, this new amendment will increase its reach to nearly 5 million potential borrowers.

Here’s What Will Happen under the New Rules

The new executive order will further ease the college debt troubles by allowing borrowers to cap their payments at 10 percent of their monthly income. Quite a number of borrowers already had this facility. This time around, the order includes 5 million more people who weren’t covered previously, and they also include people who got their loans before October 2007.

President Obama’s alternative payment plan helps students in a variety of ways. For example, public-sector employees with regular, on-time payments may see their debts forgiven after some time. Similarly, teachers can also apply to have the rest of their debt cancelled after 10 years of regular payments. While low-income borrowers may see their balance canceled after 20 to 25 years of on-time payments.

Fact of the matter is that, many student loan borrowers are working hard and being responsible about their monthly payments, but debt still remains a very real struggle for them.

President Obama’s executive actions will be processed and made available to borrowers by December 2015.

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Millennials: A generation drowning in student loan debt

By Tracey Porpora

STATEN ISLAND, N.Y. — Michelle Rossman, 25, has $65,000 in student loan debt, but makes just $24,000 per year teaching English as a second language.

She’s not alone. She’s one of many millennials — age 22 to 33 — who are drowning in student loan, credit card and other debt accrued while attending college.

MORE STUDENTS TAKING OUT LOANS

A recent report put out by the Department of Education tracked 15,000 2002 high school graduates to see where they are today. About 84 percent of report participants started college, and 60 percent of those who attended college took out loans to pay for it.

About 79 percent of the report participants have debt, which included credit cards and mortgages. Approximately 55 percent owed more than $10,000, according to the report.

Many say the reason millennials are strapped with debt more than prior generations is because of the rocketing costs of college tuition. It’s been reported that college tuition has doubled since 1980.

Read more…

If you are a teacher with student loan debt, you might qualify for certain benefits under the loan forgiveness program established for teachers. Click here to learn more. 

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